Economist Paul Emrath of NAHB has updated a model he developed that estimates the value various features add to a home. The updated research paper and estimating tool enables builders, developers, prospective home buyers and home owners to see the impact that various physical features and neighborhood characteristics might have on the price of a home.
Looking at location factors, the updated NAHB tool finds a general tendency for house prices to be higher in the Northeast and West, as well as in central cities and suburbs. Meanwhile, prices tend to be lowest for homes built outside of a metro area, though some regional variation exists regardless of urban status.
The standard new single-family detached home is defined by these features (based primarily on averages or medians from the Census Bureau’s Survey of Construction):
- 2,150 square feet of living space
- Two full bathrooms and one half bath
- Three bedrooms
- Construction on a slab foundation
- A garage
- Central air conditioning
- A fireplace
- A separate dining room,
- Three miscellaneous rooms
- Satisfactory shopping (grocery or drug stores) within 15 minutes of the community or neighborhood
The price estimator, which can be accessed on computers with Microsoft Excel, can be useful in a variety of settings. For example, home builders might use the estimator to help determine if the cost of providing a particular amenity will be valued by consumers, while households considering purchasing a new home can use it to get a rough idea of likely price differences for different sizes and amenity packages. Existing home owners can use it to get an idea of how much it would cost to trade up to a home that is newer, larger or more stocked with amenities, while remodelers can use it to show how much particular renovations would add to the value of a home. Finally, developers can use the estimator to help price neighborhood characteristics such as waterfront space, which can help them evaluate the desirability of potential building sites.
Among other important findings, the estimator reveals that the greatest impact on a home’s value comes from adding a third full bathroom, which boosts the estimated price of a standard new home built in a Southern suburb by about $43,000. Meanwhile, eliminating the fireplace reduces the estimated price by about $24,000.