Has buyer demand for a home's location shifted since the pandemic response ended in 2022?

  • Yes, demand for rural homes has increased (50%, 5 Votes)
  • Yes, demand for suburban homes has increased (20%, 2 Votes)
  • No, demand for a home's location has remained the same as during the pandemic (20%, 2 Votes)
  • Yes, demand for urban homes has increased (10%, 1 Votes)

Total Voters: 10

This article covers the many factors influencing a property’s market price and the broker’s price opinion (BPO) report, including the property’s location, natural hazards and local ordinances.

Elements shaping a property’s pricing

A broker price opinion (BPO) is a broker’s analysis and estimate of a property’s market price, determined as its fair market value (FMV) on a specific date and documented in a written BPO report.

The BPO report includes data collected and analyzed by the broker which substantiates their opinion of the property’s market price — its FMV. The FMV of a parcel of real estate, given as a dollar amount, is typically determined based on the sale of comparable properties and application of a capitalization rate to a property’s net operating income (NOI).

In real estate evaluation, the most common type of pricing used is market price, also called FMV.

By definition, the FMV of a property is the price agreed to by a buyer and seller, who are knowledgeable of relevant facts, for the purchase of a parcel of real estate for sale on the open market. [Calif. Code of Civil Procedures §1263.320]

Factors used in the evaluation process to determine a property’s market price include:

  • demand – the number of buyers for the property;
  • utility – the property’s possible uses;
  • scarcity – the availability of similar properties; and
  • transferability – the seller’s ability to transfer good title to a buyer clear of all encumbrances itemized in a title insurance policy.

Collectively, these are known as the elements of market price, memorized using the acronym DUST.

Related article:

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Forces influencing market price

The operating forces inherent to a property, without concern for its worth to a prospective buyer, which directly influence market price include:

  • physical considerations – the property’s proximity to commercial amenities, access to transportation, the availability of freeways, beaches, lakes, hills, etc;
  • economic considerations – rents in the area, vacancies and the percentage of homeownership, as well as employment opportunities lost or gained;
  • government considerations – property taxes, zoning, building codes, and local services such as police and fire protection; and
  • social considerations – crime rates, school ratings, shopping and recreational opportunities.

Memorize these forces influencing a property’s market price by using the acronym PEGS.

While certainly important to the seller, factors not used to determine a property’s market price include the present owner’s:

  • acquisition cost;
  • property taxes;
  • listing price;
  • mortgage financing; and
  • equity in the property.

Related article:

Buyer purchasing power determines home prices — always

 A parcel’s location affects market price

The existence of offsite conditions and security unique to a property’s location can affect the property’s usefulness, and thus worth. When known to all participants, these conditions affect marketability and pricing. Thus, they are considered material.

As material facts in a transaction, these offsite conditions are disclosed on forms included in a marketing package for the sale, exchange, lease or option of a one-to-four unit residential property — available on demand from a prospective buyer or their agent. [See RPI Forms 308; 321]

The form Unique Factors and Conditions Affecting Property, RPI Form 308, lists several factors which when known to a buyer might influence the buyer’s decision to purchase or the price and terms for payment to acquire a particular property, including:

  • Notice of Airport in Vicinity;
  • Notice of Right to Farm;
  • Notice of San Francisco Bay Conservation and Development Commission Jurisdiction;
  • Notice of Mining Operations;
  • Notice of Industrial Use Zone;
  • Notice of State or Federal Ordinance;
  • Notice of Contamination of a Controlled Substance;
  • Notice of Death;
  • Notice of Insurance Claim Affecting the Property; and
  • Notice of Other Conditions affecting the property or immediate vicinity for the agent to list. [See RPI Form 308]

The Transfer Disclosure Statement (TDS), RPI Form 304, though mandated for use, does not specifically list security or local criminal activity in the surrounding neighborhood which might affect a property’s worth to a buyer. However, the TDS broadly calls for the seller to provide information regarding neighborhood nuisances without limitation to items listed on the pre-printed TDS form.

Any lesser disclosure when dealing with a buyer is deceit, a fraud on the buyer by the seller and the seller’s broker.

Neighborhood crime and security conditions

Crime has an adverse impact on both a prospective buyer’s decision to purchase and the parcel’s market price. Thus, criminal activity on or in the area of the property is considered a material fact to be disclosed by the seller. Criminal activity includes instances of:

  • vandalism;
  • petty theft;
  • late-night noise disturbances; and
  • violent crimes.

Any security efforts undertaken by the homeowner to mitigate the risks of criminal activity are themselves part of those material facts, including the presence of:

  • a security system;
  • fencing;
  • lighting; and
  • video cameras.

The Seller’s Neighborhood Security Disclosure Addendum is prepared by a seller’s agent for inclusion in their marketing package for a property listed for sale or lease. The form addresses aspects of security on or about the property to disclose facts known or readily available about security conditions on or in the area of the property. [See RPI Form 321]

Each section of the Seller’s Neighborhood Security Disclosure has a separate purpose regarding the security of the property’s occupants. The sections include:

  • statement from the seller disclosing any investigative reports on the adequacy of the property’s security arrangements [See RPI Form 321 §2];
  • security precautions already undertaken, including steps taken by the seller or prior owner to prevent security breaches [See RPI Form 321 §3];
  • conduct on the property by a tenant, their pets or visitors which have endangered another person or the property of another [See RPI Form 321 §4]; and
  • any other specific criminal activities occurring on the property during the past two years, including theft, vandalism, trespass or assault. [See RPI Form 321 §5]

While the disclosure of security conditions concerning a property is not yet statutorily mandated, disclosure of material information “readily available” to sellers and their agents, and “relevant to a buyer’s decision” are required by courts to be disclosed. The agent marketing a property is required to know what they are marketing.

However, purchase agreements do include as they must, the web address of the sex offender registry, www.meganslaw.ca.gov. This disclosure effectively shifts the burden of discovery — all the actual material facts — to the buyer and their agent to investigate the existence of sex offenders in the neighborhood of the property. [Calif. Penal Code §290.46, CC §2079.10a; See RPI Form 150 §11.16]

While the BPO report is not likely to include comment on neighborhood crime and thus the extent of its impact on pricing, the result will be indirectly present. The market prices recently paid for comparable properties immediately around the subject property will reflect the level of concern buyers have for the presence of criminal activity.

The role of economic fundamentals in evaluation

Several economic concepts also come into play in a broker’s evaluation of a parcel of real estate.

These concepts, sometimes called economic principles or fundamentals, include:

  1. Supply and demand: For evaluation purposes, the principle of supply and demand holds that once the supply of available homes decreases, the market price of homes increase since more buyers are making demands on a decreased supply of homes made available by sellers. This principle correlates to the density of the population and its level of income, the issue of local demographics.
  2. Change: The principle of change holds that property is constantly in a state of flux. The change a property experiences is seen in the parcel’s life-cycle.
  1. Conformity: The principle of conformity holds that when similarity of improvements is maintained in a neighborhood, the maximum market price of a property can be realized on a sale. Zoning regulations and conditions, covenants and restrictions (CC&Rs) allow specific uses for a property and exclude nonconforming uses.

The principle of conformity is further categorized under the principles of:

  • regression: The principle of regression holds that the market price of a property with the most usefulness in a neighborhood will be adversely affected by the market price of other properties in the neighborhood. For example, consider an over-improved home. Here, an owner makes significant improvements, such as adding additional rooms and landscaping, and the other neighbors do not. Thus, the property is no longer similar to the others. When sold, the over-improved home will not command a price which includes the full cost of the over-improvements.
  • progression: The principle of progression, in contrast to regression, holds that a smaller sized property in a neighborhood will sell at a higher price than the property would sell for in a location of comparably sized properties.
  1. Highest and best use: The principle of highest and best use holds that the greatest market price of the property is realized when its use is maximized. The test for highest and best use requires that the use be physically possible, legally permissible, economically feasible, and achieve the maximum productivity (memorized by the acronym PLEM).
  2. Contribution: The principle of contribution holds that the cost of one component (of improvements) is measured in terms of its contribution to the market price of the whole property rather than its separate individual cost. For example, a property’s FMV may increase when additions, such as a swimming pool, are added.
  3. Substitution: The principle of substitution holds that a buyer will not pay more for a property when it will cost less to buy a similar property of equal desirability. The principle of substitution is the most basic principle of evaluation as it is used in each of the three approaches to market price.

Geographic and environmental influencers on market price

Unlike property improvements, which can be fixed or replaced, geographic influences — such as natural hazards — run with the land. Often, humans can do little to permanently alter their effect on property and humans.

Locations likely to subject a property to natural hazards include:

  • special flood hazard areas, a federal designation;
  • potential flooding and inundation areas;
  • very high fire hazard severity zones;
  • wildland fire areas;
  • earthquake fault zones; and
  • seismic hazard zones. [ Civil Code §1103(c)]

The existence of a hazard due to the geographic location of a property affects its usefulness or desirability, and thus its pricing for prospective buyers. To unify and streamline the disclosure of natural hazards to a prospective buyer of a property, a statutory form was created entitled the Natural Hazard Disclosure Statement (NHD). [See RPI Form 314]

Related article:

Natural hazard disclosures and the seller’s agent


Environmental hazards are man-made noxious or annoying conditions which are hazardous for humans. Environmental hazards have an adverse effect on a property’s usefulness and worth to its occupants. As an interference with the use of a property, they are considered defects and material facts disclosed to prospective buyers before they enter into a purchase agreement.

Environmental hazards located on the property which pose a direct health threat to occupants due to construction materials, the design of the construction, the soil or its location, include:

  • asbestos-containing building materials and products used for insulation, fire protection and the strengthening of materials; [Calif. Health and Safety Code §§25915 et seq]
  • formaldehyde used in the composition of construction materials; [CC §2079.7(a); Bus & P C §10084.1]
  • radon gas concentrations in enclosed, unventilated spaces located within a building where the underlying rock contains uranium; [CC §2079.7(a); Bus & P C §10084.1]
  • hazardous waste from materials, products or substances which are toxic, corrosive, ignitable or reactive; [Health & S C §25359.7; Bus & P C §10084.1]
  • toxic mold; [Health & S C §§26140, 26147]
  • smoke from the combustion of materials, products, supplies or substances located on or within the building; [Health & S C §§13113.7, 13113.8]
  • security bars which might interfere with an occupant’s ability to exit a room in order to avoid another hazard, such as a fire; [CC §1102.16; Health & S C §13113.9] and
  • lead.

Environmental hazards located off the property, but still having an adverse effect on the use of the property and in turn its pricing, arise due to noise, vibrations, odors or some other ability to inflict harm, include:

  • military ordnance sites within one mile of the property; [CC §1102.15]
  • industrial zoning in the neighborhood of the property; [CC §1102.17]
  • airport influence areas established by local airport land commissions; [CC §§1103.4(c), 1353; Calif. Business and Professions Code §11010(b)(13); See RPI Form 308] and
  • ground transportation arteries which include train tracks and major highways in close proximity to the property.

Related article:

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 Local government ordinances

Local zoning laws, ordinances or regulations restricting or regulating the occupancy, use or enjoyment of the land are also material facts.

For example, in rent-controlled communities, a prospective buyer as a landlord needs to be fully apprised of how rent control ordinances affect their ability to alter provisions in lease and rental agreements such as adjustments in the price of rent or ability to evict.

Further, annual rent increases for corporate type ownership of residential properties are capped at 5% plus the rate of inflation under rent control codes enacted by the Tenant Protection Act (TPA). [CC §§1947.12(a)(1); 1947.12(h)(1)]

Also, local governments have enacted their own rent control ordinances, which the TPA does not supersede. [CC §1947.12(m)]

Thus, it’s critical for buyers of residential income property to obtain information on local rent control codes and ordinances, as they impact the landlord’s future income stream, and thus their pricing decisions when deciding to purchase.

For another example, single family zoning in California has been effectively eliminated with the passage of the Home Act in 2021.

However, properties may have their value suppressed by exemptions from the Home Act exploited by city councils bydesignating that a property is:

  • located in a historic district;
  • wildlife sanctuaries; or
  • designated as a landmark by the city or county. [Calif. Government Code 65852.21(a)(6)]

Therefore, a prospective homebuyer expecting to be able to improve their property’s use with the addition of an accessory dwelling unit (ADU) or by subdividing — or just good old renovation — need to confirm the parcel does not fall into one of the city council’s NIMBY zoning wars.

Thus, the broker evaluating a property needs to know the local politics for regulating the use of a parcel when determining its market value. Some local governments are less amenable to compliance with state law than others.

Related article:

California Attorney General clashes with NIMBYs in Huntington Beach