What Is Appreciation in Real Estate? The Basics Explained

When you buy a home, you hope it will increase in value over time. This is real estate appreciation. This is the opposite of the term depreciation which is where a home loses value over a period of time.

Real estate appreciation typically happens quite slowly and a healthy increase in value would be between two and four percent per year.

But what is appreciation in real estate?

In this article, we’ll look at house appreciation in relation to real estate value and how to increase house value.

What Causes a House to Appreciate?

You’ve probably heard of supply and demand pushing the price of products up. When an item is in high demand and there is less stock available, then the price of the item will rise.

Well, the same is true of real estate. When the demand for homes is greater than the current supply, people are going to be willing to pay more for their homes.

Other factors such as inflation, the state of the housing market, and the condition of the property will also affect its value and will help to determine whether it has increased or decreased in value.

What Factors Affect Appreciation?

Several factors cause a property to appreciate in value. There is only a finite supply of land and no more can ever be produced.

If a home is near amenities such as schools or shops then this can increase the value of the property.

An increase in the birth rate and population growth through immigration will factor in the value of real estate.

Where a home is affected by the physical or social infrastructure it could appreciate in value- this could relate to the proximity to major link roads.

Some homes will sell quicker than others and an experienced realtor will be able to help you ascertain where the market is at.

The appeal of the property is important; this includes the size, decor, age, and condition of the property.

Inflation causes a rise in the cost of goods which in turn pushes up house prices

Real estate appreciation is affected by a combination of these factors.

How Do You Calculate Appreciation?

The appreciation rate is reflected as a percentage. There are two parts to the formula

  • New value – old value = value change
  • Value change ÷old value = percent of change in value

So, for example, if a home was bought for $300,000 and sells for $350,000 there is a value change of $50,000.

$50,000 ÷ $300,000= 0.16 meaning that there has been a 16% increase in value.

What Is Appreciation in Real Estate?

So, what is appreciation in real estate?

Appreciation is where the value of a home increases over a period of time. There is a range of factors that affect appreciation including supply and demand, inflation, condition, and the proximity of the property to different amenities and infrastructure.

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