Multiple factors contribute to the value of a home including the condition, location, market demand and construction cost in addition to comparable sales in your neighbourhood.
Factors that affect home value and make up the value of your home are:
Condition: Depending how old your home is and the condition it is in (well kept or deteriorating) affects the home value. New homes usually sell at a premium compared to older homes because it is assumed that you would not have to make significant capital investments in a newer home. Also many buyers prefer new homes as they are easier to maintain and are updated with the latest technology, materials and finishes. Older homes require roof, window and even flooring replacement.
Location: This is probably the most important factor that contributes to the home price. Many buyers buy homes purely on the location and the proximity to good schools and therefore the value of the home varies from one neighbourhood to another. Other location factors include proximity to city centres (downtown) and close access to highways. There are also micro factors that could affect the home price. For instance, a family with small children may not prefer a house on the main road for safety reasons and that house could sell for a few thousand dollars lower compared to a house on an interior street.
Land Value: Though the value of the land depends upon the location, it could make up a high percentage of the house price. In metropolitan cities like Toronto, the land value could be 70 percent of the total house price or even higher for older homes. Whereas if you look at farmland outside the city, the land value may be cheaper and less percentage of the total price. You will generally find larger lots outside the city due to cheaper land.
Construction Cost: Cost of building a home could be around $200-$250 per square feet and more for custom homes. What structure you build, what finishes you have installed (quartz and hardwood are premium finishes) may push your home to sell higher. The finishes outside your home and whether you have built a basement or not would also impact your home value. Some home improvements like building a deck and landscaping could add value to your home as well as these are desired items for homebuyers.
Sales Comparables: The most prominent way for appraisers to calculate your home value is to look at what similar houses in your street have sold for. This gives prospective buyers a benchmark of what to bid on a similar home. Do not forget to adjust the value of comparable homes for the time period and the home improvements of the home you are pricing out.
Demand: Certain larger North American cities like Toronto or Vancouver experience huge immigration numbers. Immigrants may bring capital from their home country and contribute to increased demand for the housing market. If there are new people entering your city, they would need a house to live in and many of these would like to purchase a home to raise a family. Immigration increases home demand and affects the housing market.
Current Market Situation: Finally, the value of your home also depends upon current economic situation and the prime interest rate set by the US Federal Reserve or the Bank of Canada. Higher prime rates could mean higher cost of mortgage, less mortgage affordability and buyers who are willing to pay less for a home.
To summarize, there are a lot of factors that affect the home price and you should look to buy depending upon what you could afford and not have to stress about.