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Property Desirability Factor

When determining property values, some science can be applied as discussed in the Comparative Market Analysis or CMA. This methodology uses objective criteria and mathematical equations. What everyone wants to steer clear of talking about is “Property Desirability Factor”. The problem is that it is hard to quantify when determining a fair market price.

The desirability factor is better explained by example. Suppose that you have oceanfront houses that sold within a month of each other and two sold for $500K and the other sold for $550K. Their square footage is 2,000 SF for each, the same number of bedrooms, same number of baths, same quality of finishes, constructed the same year and etc., everything is all the same you would think and should have sold for the same price. Further discovery shows that the house that sold for $550K had a 3 sided living room with floor to ceiling glass on all 3 sides that provided 270 degrees of pure ocean views. This feature gave this property a higher Desirability Factor. Perhaps this is an exaggerated example, but it illustrates the point.

Desirability Factors are difficult at best when trying to quantify them numerically. They come in all shapes in sizes and can be subjective in nature to the Seller or the Buyer. These factors can be a certain street location, home design features, higher elevations, a view and etc. These factors can sometimes have more to do with perception and nothing that is tangible that causes one property to have a higher desirability factor and thus sell for more money.

Desirability factors can also be negative in nature as well. Using the same scenario as above, suppose that the house that the norm was $550K for the other two and here is one that sold for $500K. What is wrong now? It is discovered that the living room on this one house was 11 x 14 and the other two had 14 x 20 living rooms. Perhaps again this is exaggerated, but it illustrates the point that the smaller living room created a desirability factor that lessened the value of the property.

Viewing property values purely from the numerical equations bedrooms, baths, and square footage can create illusions of value. We trust appraisers to help us understand these desirability factors, but most is learned in the market place. Desirability based on perceptions and sometimes unseen property features causes one property to have a higher or lower fair market value. It can be highly subjective, but in the end it comes down to what a Buyer is willing to pay, higher or lower, for the desirability factor of a certain property.