If you compare one real estate market to one that is located only a few miles away, they can be very different. Once you start comparing one state to another or even from one city to another, this starts to become plainly apparent.
So, what exactly makes real estate markets different? There are actually many factors that contribute to differing real estate markets.
Home Value - Determining the market value of a home is something that can be done by a computer or by someone in a different state, but it tends to be very inaccurate. One of the biggest variations between real estate markets are the values of the home. A home that is worth $200,000 in the Houston, TX is not going to be worth $200,000 in the Miami FL even if the homes are almost identical. While this seems like common sense, some believe because a home is identical, it will be worth the same.
It’s extremely important that when determining the market value of a home that you enlist the services of a top local real estate professional and trust their expertise. A local expert understands how the real estate market works specifically in that area because they are working in it on a daily basis.
Appreciation - An increase in value of an asset over a period of time. Using an appreciation rate is a HUGE mistake when comparing one real estate market to another. It’s possible that some real estate markets have an average appreciation rate of 3% while another may only have an average appreciation rate of 1%. A 2% difference between an appreciation rate doesn’t seem like a substantial amount, but it is when you’re discussing an asset that is worth hundreds of thousands of dollars or more.
Let’s take an example of two properties worth $100,000 in two different areas (A and B) and you put 20% down (⅕ of the total investment). If the market goes up 1% in area A then you made 5% on your money, and if market goes up 3% in area B then you made 15% on your money!
Property Taxes - Real estate property taxes are not something that anyone looks forward to paying. The problem is that real estate property taxes go hand in hand with owning a home and are not something that can be avoided. Real estate property taxes from state to state can vary significantly.
EX: The taxes on a property with an estimated value of $250,000 in the state of California would be $1985.00 per year while in the state of Texas they would be $2,993.00 There is also a huge variation in the median property values in these respective states with it being $547,900 in California and $340,700 in Oregon.
As you can see the average property values in California are much higher than the average property values in Oregon additionally the tax rates are also considerably different between the two states. Even tax rates between two counties can vary.
Rules And Procedures - Last but certainly not least, real estate market rules and procedures are different. Let’s look at who closes real estate transactions.
Real estate closing agents are different between states as some states require attorneys to close real estate transactions while others will utilize title companies.
It’s critical that if you’re buying or selling real estate in a market that you’re not familiar with, you understand what the local rules and procedures are. Having an understanding of the local rules and procedures can make the process less stressful and eliminate real estate closing delays.