Bank Review: What Factors Affect Apartment Value?

The market value of an apartment is traditionally influenced primarily by location and square meters, but increasingly energy efficiency, proper heating and ventilation systems, and a larger number of rooms play a role. LHV provides a fresh overview of which aspects are taken into account when assessing apartment value.

In real estate, location has historically been the main factor affecting price. "Over the past decade, perceptions regarding sustainability, living conditions, and needs have changed somewhat, all of which affect the market value of apartments," says Catlin Vatsel, Head of Personal Financing at LHV, based on the bank's real estate appraisers' experience.

For apartments in energy-efficient buildings, buyers are willing to pay more because they allow savings on utilities. "Whereas previously the condition of a building was assessed based on whether it had been renovated or not, nowadays for buyers the energy efficiency of an apartment building and monthly heating and maintenance fund costs are often more important than the appearance of the building," says Vatsel.

He advises paying attention in the Building Register to whether the building's energy label was made on a calculation basis according to the project or whether it is based on the building's actual energy consumption. "An energy label based on energy calculations generally does not account for actual consumer habits and the actual energy class may turn out to be lower than calculated," notes Vatsel.

According to him, buyers currently prefer apartments with district heating or their own heating systems due to heating price fluctuations, which are 5–10% more expensive than apartments with stove and electric heating. The presence of ventilation is also important – living spaces with heat recovery ventilation are more expensive because it allows heat to be retained, reducing energy consumption and ensuring fresh air. With apartment sizes, there is a scale effect where the price per square meter of a smaller apartment is higher than that of a larger one. For example, the price per square meter of a 40 m2 two-room apartment is generally higher than that of a 50 m2 two-room apartment.

A notable change, however, has occurred in the number of rooms. "The most valued are apartments that have more rooms on the same floor area. In the early 2000s, apartments were built with large open rooms, but nowadays there is more appreciation for optimally sized living spaces and more rooms on the same floor area to create a separate home office or a separate room for each child," says Vatsel.

Due to the need for a larger number of rooms, changes to apartment layouts have often been made in Soviet-era panel buildings, whereby technical systems are rearranged inside the apartment and the kitchen is built into one wall of the living room, while the former kitchen is converted into a room. Changes are also made where the kitchen is combined with the living room or the bathroom is enlarged at the expense of the corridor.

"When it comes to apartment layout changes, it is important that the renovation work is properly registered and the documents are in order in the registers. In the case of unregistered wall demolition, appraisers often deduct the estimated cost of the work required for registration from the value of the property. Also, apartments with unregistered renovations have lower liquidity," emphasizes Vatsel.

When assessing apartments, apartments in similar buildings are generally used as a basis for determining market value. For example, if the property being assessed is located in a five-story panel building, it is not compared with an apartment in a nine-story or Stalinist building, because their prices may differ significantly. "For example, there is a clear market trend that apartments in Stalinist buildings are highly valued from the Soviet-era housing stock, as they have high ceilings and thick brick walls," adds Vatsel.

The price also depends on which floor the apartment is on. Developers traditionally price new development apartments mostly by floor – the higher the apartment, the higher the price. However, purchase decisions do not show that buyers are willing to pay more for an apartment on a higher floor. "For example, if the rule previously was that first-floor apartments are less valued due to poorer views, greater street noise, and lower safety, then nowadays in suburban areas first-floor apartments with a large terrace are often priced higher because children can go straight out to play in the yard and parents don't have to go up and down the stairs," points out Vatsel. The value of apartments is certainly also increased by the presence of a balcony, loggia, or terrace. Roof terraces are especially valued.

In older buildings without elevators, fifth-floor apartments are generally less valued despite better views, as getting home requires good physical fitness. "Nevertheless, the rule applies that an exclusive forest, sea, or city view adds value to an apartment, and apartments on higher floors in tower buildings cost approximately 5-10% more," notes Vatsel.

The presence of a dedicated parking space and storage is a factor that increases market value. However, as with renovations, it is important that the use of the parking space and storage is legally secure – it is checked whether these are included in the apartment ownership through exclusive use, use rights, or whether these are separately alienable. A parking space belonging under the apartment association agreement can be an advantage for the buyer, but does not affect market value, as non-notarized agreements are easily changeable.

LHV Bank offers its home loan clients real estate appraisals on favorable terms. Find out more: lhv.ee/kodulaen.