What Causes a Home's Value to Depreciate?

Physical deterioration is one of the most common reasons for a home to lose value. Aging structures decline in value when items become worn and need replacement. Curb appeal is lost when the style of a home becomes outdated, causing market value to decrease. Even simple neglect can cause a home to lose value. The good news, however, is a homeowner can take action to bring the property value up by making needed repairs, investing in sensible remodeling projects and cleaning up his property. Once your house is brought back to good physical condition, you can protect property values by performing routine maintenance and repairs as needed.

Location is always a key factor in determining property value. Surrounding homes, businesses and activities will have an effect on any home’s worth. A home located in a neglected neighborhood can depreciate – regardless of the structure's condition. The noise from a nearby business can decrease home value. Even the unsavory conduct of people living in or frequenting a neighborhood can cause a decline in value. Prudent homebuyers should carefully consider neighborhood conditions and check the community's master plan before making a purchase. Once you make your investment, actively engage in efforts that enforce zoning and local ordinances to protect housing values.

Although it may not be physically evident, a perceived risk in home ownership can cause a house to lose value. For example, even if a home has never actually had flood activity, but it is located in a flood zone, a potential buyer may perceive that risk is imminent -- thus driving down the value of the home. Additionally, the high cost to insure such a property may also decrease what a potential buyer is willing to offer since he will bear high carrying costs in the future.

Perhaps one of the most frustrating reasons for a decrease in home value is a depressed economy. When money is scarce and eager buyers are absent, values often decrease -- regardless of a home’s condition or location. The best choice a homeowner has in a bad economic climate is to hold on to his property, if he is able, and wait until market conditions improve to sell.