Types of Damage That Drive Down the Value of Real Estate

May 12, 2020 6:01 pm Published by Leave your thoughts

When you’re getting ready to sell your property, naturally, you’ll want to ensure you’re getting the best price for your investment. In high-value areas like the Napa Valley, property can appreciate quite a bit. However, there are several reasons why you might actually see a depreciation in your real estate’s value. Here’s a closer look at what can drive down the value of your property in Napa County, CA:

  • Foreclosures and short sales: When property is foreclosed upon and then sold for a lower rate, it impacts the property values of the surrounding area. If you own a multimillion-dollar property, but a similar one was foreclosed upon and sold for 60 percent of its value, it will affect how much buyers will be willing to spend on your property—even if it’s not directly comparable. Buyers tend to look at the number of foreclosures and short sales in an area. If there’s a pattern or steady increase, the area will appear to be (or is) unstable, and would likely not be a good investment. After all, buyers want to know that they’ll be able to recoup their investment if they choose to sell. They may also use the foreclosure information to negotiate a lower selling price on your property. If you’re not willing to sell for less, you may need to wait until the market recovers.
  • High mortgage interest rates: Interest rates are another major factor that determines property value. This is because the higher the interest rates, the more people will pay over the lifetime of the mortgage, which drives down the pool of potential buyers—many will simply not be able to afford the interest on top of your asking price. This means that you may have to reduce the selling price of your property in order to appeal to more buyers, or put off selling until interest rates go back down.
  • Natural disasters: Finally, natural disasters make it harder to sell property for several reasons. First, if it was a disaster that wiped out an entire community, like an earthquake or wildfire, that has a direct effect on value due to destroying the surrounding area—it will take time to rebuild and make the area more valuable to buyers. Second, it might require additional insurance that wasn’t required when you originally bought the property. For example, the Northern California wildfires have been increasing in intensity, duration and frequency over the last decade, while our history of earthquakes and proximity to major fault lines make it prudent to invest in earthquake insurance. This increases costs on the buyer’s end, making it less attractive as an investment.

Ultimately, investing in real estate is all about playing the long game, so it may be necessary to wait until the market goes back up to fully recoup your costs or make a profit.

If you need a thorough appraisal or would like to better understand what can drive down the value of real estate in Napa County, CA, call the experts at County Appraisals Inc. today.

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