Rarely will you find real estate markets that are exactly the same.
In fact, your market could be drastically different compared to the one in the next community over. Of course, the differences typically tend to become increasingly noticeable the further away you go. For instance, a market from one state to another might be a lot different from each other compared to markets in different cities.
If you’re planning to move out of the neighborhood, city, or even out of state, be prepared to see some drastic variations. Comparing your home to one in another city or state is like comparing apples to oranges – it’s almost impossible. Making such comparisons is useless because real estate markets are rarely ever the same.
You can’t even compare what your market is like today versus what it was like last year, as even within the same market things will change as time passes.
So, what exactly is it that makes real estate markets different from one another?
One of the biggest differences between real estate markets are the property values. The exact same house in San Francisco will certainly have a much different value if it was located in San Diego. This might seem obvious, but some people mistakenly believe that identical homes should be worth the same amount.
The only way to get an accurate value of a home is to have it appraised by a professional in person. Having it “appraised” over the internet by someone in a different city will more than likely result in an inaccurate answer.
When determining what the market value of a home is, it’s crucial to have an experienced local real estate professional assess the property based on current market conditions in which the home is located to come up with an accurate number. Local experts are well versed in the real estate market in which they work and better understand how the real estate market operates in their area compared to a professional who works in a completely different area.
Local real estate agents will pull a report of listings of similar properties that have sold no further back than 6 months to gauge what property values are worth. Not only do the homes need to be similar, they also need to be located in the same area and not have been sold years back. Any further back than a few months will render these comparables useless for comparison purposes.
Property Age, Style, and Features
The types of homes will vary from one real estate market to another, which also plays a part in differentiating markets. For instance, one market may be predominantly made up of 3-bedroom bungalows while another may be more focused on townhouses and condominium buildings.
In addition to the style of homes, their age also influences real estate markets. Some markets might have little to no new construction activity while others may be experiencing rapid growth in new construction. It would be futile to compare newer homes with those that are decades old.
Further, the types of amenities that the majority of homes in one real estate market have might be drastically different to those featured in homes in other markets. For instance, large lots, backyard decks, and open concepts may be commonly found in homes in one area, but could be scarce in another.
Property Tax Rates
Nobody likes paying property taxes, but they’re inevitable and simply cannot be avoided. Aside from affecting your pocketbook, such taxes – more specifically, property tax rates – also impact how one market stacks up against another.
Real estate property tax rates can vary drastically from one county to another. For instance, the tax rate in Los Angeles County is 0.689% versus 0.812% in Napa County. That means a $400,000 home would come with annual property tax payments of $3,172 in LA versus $3,248 in Napa.
Quality of the Neighborhood
In the world of real estate, location is king. Property values are heavily dependent on the surrounding area that the homes are located in. A neighborhood of high quality will obviously be valued more favorably compared to an area that’s considered of lower quality. So, what exactly makes an area highly regarded? Many factors come into play here, including crime rates, school ratings, proximity to city centers, types of amenities, walking scores, and so forth.
In addition, homes that are located close to major highways or city centers play a key role in determining their overall market value. As a neighborhood gets closer to main arteries of transportation and downtown cores, the values of homes will be heavily impacted.
Rate of Appreciation
Property appreciation refers to the increase in value of a home over a certain period of time, and appreciation rates are another huge reason why real estate markets differ from one another. However, using an average appreciation rate to compare one real estate market to another is not a good idea.
One real estate market might have an appreciation rate of 4% while another might only have rate of 1%. A difference of 3% might not sound like a lot, but when you’re talking about a something as valuable and expensive as a home, that mere 3% could translate into tens of thousands of dollars or more.
The Bottom Line
Even real estate markets that are within close proximity to each other can be very different. It’s not uncommon to hear about real estate prices in the media, but the factors that actually influences prices in either direction are often neglected. It’s important to understand that every real estate market has different traits, which all come into play when it comes to differentiating one market from another and how homes in each market are currently valued at.