The Real Estate Value of Community

Just the other day I was struck by a question a homebuyer asked me: “What's this place like?”

This is code or polite language for, “How are people around here?” or, “Is this a friendly place," i.e., "Will we be able to get to know people?” The intangible value of “community” is first and foremost in the minds of buyers as they decide if a home will not only suit their physical needs of shelter and comfort, but their quality of life.

As you are aware, much of the world is caught up in a declining real estate market, as is the case for most of the Bay Area. As homeowners, we are all concerned about how we can maintain the value of our homes.

Most homeowners attribute increased value of their homes to value-add projects such as remodels, landscaping and the like. We spend very little time considering the value intangibles bring to our properties, such as pleasant neighborhoods and friendly residents or nice parks, cafés and open spaces for people to enjoy.

It is clear that these intangibles can have an important positive effect on the price of your home. Also, an active homeowners' association can add value to your property by its efforts in helping to maintain a certain character of place and quality of life in a community.

Throughout my real estate career I've had the opportunity to be involved in many different types of transactions, from selling office buildings to commercial industrial buildings, and even raw land. At a certain point in my career I was involved in selling TIC (tenant-in-common) interests in commercial office buildings, as well as large tracts of land.

The process of selling these investments meant that I needed to educate clients on how and why property appreciated. This educational process typically happened in a seminar setting where I would take clients through the “process of property appreciation.”

The exercise demonstrated the power of “services and intangibles” and how this impacted property appreciation.

Here's a real life example that I used: the investment property was a home in San Jose (1,400-foot modest bungalow). We looked at what it sold for in 1977, $45,000, and what it sold for in 2006, $650,000 (wow!).

We also looked at a schedule of construction costs for the same period of time. As it turned out, construction costs had risen only modestly in comparison with the home's overall price. So the question is, what had actually appreciated? The wood and stucco building, or the land?

If you guessed the land, you were right. And why did the land appreciate? Services and opportunity.

In 1977 the home was not in close proximity to good jobs. (In 1977 a good job was pumping gas in the local gas station for $5/hour whereas in 2006 you might get a job at Yahoo or Google making $60/hour with stock options). Back in 1977 there wasn't much of a shopping district, nor were there upscale restaurants and cafés, and the school system was small and inadequate.

Today, all that has changed thanks to growth of the surrounding area and the opportunity and services that growth brings. So there is good reason to believe that a home's value is positively impacted thanks to the “intangibles.”

Here's another example a little closer to home—my home, in fact—that doesn't factor in the stellar growth of property values close to Silicon Valley.

As a homeowner, parent and real estate professional in San Leandro, I am acutely aware of how important local services have been to me and my family. As a Realtor there is nothing more satisfying than talking about the friendly and neighborly nature of our city. Buyers love to hear it.

As a homeowner I am proud of our city government and the services that we all depend on and enjoy. (Have you seen our new senior center and freshmen high school campus? Wow!).

As a parent I watched my young children participate in numerous city programs including swim lessons and summer day camps. As teenagers they became the swim instructors and the day camp counselors. They were even able to participate in city government through the Youth Advisory Commission.

These services and opportunities, as well as the character and cohesiveness of my neighborhood, will bring an intangible value to the next family who will someday occupy my home.

So the moral of the story is this: as a homeowner, pay attention to and support the intangibles of community. Not only will you enjoy the process, but these intangible assets will help buoy your property value.

When you decide to sell, make sure that your Realtor is aware of all the benefits of living in your community and can pass that valuable information along to prospective buyers.