Market Insights: Homebuyers pay premiums to be marginally closer to neighborhood hotspots
Executive Summary
Context, location, and timeliness are everything in residential real estate. Real estate markets are more volatile and fast-moving than ever, with market segments shifting as much as 30% in a matter of weeks. Traditional methods of analysis that rely on out-of-date and incomplete data sources are leading to inaccurate pictures of the housing market.
In this report, we take location and context to another level by analyzing price differences in real estate attributed only to proximity to retail and entertainment activity. We found that residents of Bedford Avenue in Brooklyn, NY, paid $35,000 more to live one block closer to the Bedford Avenue commercial district. Our proprietary data helps users optimize decisions and understand real estate market supply and demand at the most granular level, at the speed of today.
Here are some major insights from our analysis:
- Bedford homeowners paid a premium of $35,000 to be one block closer to the urban center, saving 1 minute and 51 seconds each direction of walking time to cover the 500 foot distance
- Bedford homeowners paid $344 for every additional square foot of real estate added to their homes
- One additional bedroom cost Bedford homeowners 2.13% or added $32,600 to the bottom line when purchasing a home
- An extra bathroom costs Bedford homeowners 12.68% or $194,000
Homebuyers Pay Premiums to be Marginally Closer to Neighborhood Hotspots
Everyone knows it’s all about “location, location, location” when it comes to real estate value, but do these differences matter down to the block level? Is location’s effect on price negligible as long as properties are located in the same neighborhood? Or is the truth more granular, and when controlling for other factors, are people really willing to pay to be one block closer to convenience?
We selected Bedford Avenue because it runs through the heart of one of its most popular and amenity-rich neighborhoods, Williamsburg (Brooklyn, NY), and thus offers a great opportunity to understand the premium of proximity.
Our initial Parcl Labs analysis demonstrated that Brooklyn homebuyers are willing to pay more to live closer to Bedford avenue.
Using spatial data science in tandem with our proprietary data, we went further and modeled how much people were willing to pay to live a block closer to Bedford Avenue, while controlling for other variables that explain price variation on real estate such as square footage, number of bedrooms and bathrooms, age of the building, property type and neighborhood. Unlike traditional methods of analysis that rely on incomplete and isolated data, we capitalize and capture rich data sources that improve real estate price estimates. Recent research has shown that including additional sources of information such as amenities and street characteristics improves the performance of assessment models and greatly reduces forecasting errors.
We analyzed all sales from January 1, 2021 to September 28, 2022 that occurred in the three neighborhoods within a mile of the eight block stretch of Bedford Avenue depicted below. Then we used spatial overlay to identify all property sales within a mile of our center line. The sales data included property characteristics used in the model such as year built, number of bedrooms and square footage and the distance to Bedford Avenue. We analyzed the data using a linear regression model with spatial fixed effects.
Our model found that proximity to Bedford does influence overall price when controlling for all other variables, with homeowners paying a premium of $35,000 just to be one block closer to the strip of amenities, or in other words living a block closer to the 591 amenities per square mile was worth a hefty markup. Our model also suggests that an additional bathroom carried a 12.7% price premium, a whopping $194,000 for an additional bathroom when purchasing a home.
Suddenly these price tags start to add up. Let’s say you lived in Williamsburg, but recently had a child and were looking to move into a new home in the neighborhood. You want to add 100 square feet of space, an additional bedroom with an attached bathroom and shorten your walk to the subway by 10 minutes. All together these features would cost an additional $436,000!
Timely real estate data matters in a volatile market. With housing markets slowing down markedly in Q3 of 2022, and especially faster price declines in new units, the ability to properly value a home is more important than ever. Buyers and sellers can use these precise, timely insights to more dynamically determine the best price for a given property. At Parcl Labs we provide rich, granular and timely data to help users make better decisions.
Do you want to learn about the premiums homebuyers are paying in your market?
Contact us to see how we can work together! Follow Parcl Labs on Twitter for more real estate insights and updates.
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