Never Underestimate the Value of Features
NAHB’s home price estimator offers a unique statistical look at the way features affect home pricing. The estimator is a unique way for builders to evaluate the impact a particular feature, or group of features, adds to the price of home.
The estimator is the result of a statistical model calibrated with data from the most recent (2013) American Housing Survey (AHS). AHS is a nationally representative survey of housing units funded by the Department of Housing and Urban Development and conducted by the U.S. Census Bureau. A notable strength of the AHS is the amount of detail it contains on each home. There are nearly 3,000 different variables per home in the 2013 public-use AHS file.
The table below shows a set of standard features for a home built recently in a southern central city, as well as the estimated price for a home in that location with these characteristics. The estimated price in this case is $173,530.
It’s important to remember that this is an average across a fairly broad geographic area, rather than the price of a specific home in a specific neighborhood. House prices within a region can vary. Prices of similar homes in Oklahoma City and Washington D.C., for instance, may be quite different, even though both locations are central cities in the South Census region.
The next table shows shows how the estimated price of the standard recently built home varies across the 14 region/metro status combinations. The price ranges from only about $142,000 if built outside of a metropolitan area in the Midwest Census region, to over $400,000 if built in a central city or suburb of the large California metro areas.
The table below shows how the estimated price of the home changes with the home’s physical features. Holding square footage and other features constant, a bed, dining, or miscellaneous room, changes the estimated price by $10,000 or slightly less. Of the features in the figure, an extra full bathroom has the largest impact, increasing the estimated price of the standard home by about $37,000.
The house price estimator finds that owners prefer a home with one more bedroom than bathroom, and attach somewhat less value to additional rooms as the home diverges from this ideal. In Figure 4, adding a fourth bedroom to a standard home with two bathrooms increased its value by 5.6 percent. If the standard home instead started with only one bathroom, adding a fourth bedroom would increase its value by 4.3 percent. All else equal, the third bathroom makes the fourth bedroom more valuable (and vice versa).
Other than an extra full bath, the largest price impacts come from adding a full basement (increasing the value of the home by $34,000) and fireplace ($27,000) to the standard home.
Originally posted in the Winter 2016 issue of Best in American Living and written by Paul Emrath.