Appreciation is the increase in value of a certain asset over time. Many types of assets appreciate, including stocks, commodities and real estate. When you purchase a home, you not only provide yourself with a place to live, but gain an asset that has the potential to increase in value over time. Home appreciation can be expressed several ways, such as the total dollar value increase over a certain period or as an average value increase per year over a certain period.
- Skill level:
- Moderately Easy
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Select the initial value you want to use for the calculation. The initial value might be the price you paid for the home or the price record of a previous sale.
Select the ending value you want to use for the calculation. The ending value might be a recent home sale price or a value estimate given by an appraiser.
Subtract the initial value from the ending value. This is the total dollar appreciation over the period between the initial value and ending value. For instance, if you bought a home 10 years ago for £32,500 and you sold it for £65,000, the total appreciation was £32,500.
Divide the dollar value appreciation calculated in Step 3 by the number of years between the initial value and ending value to calculate the average amount of appreciation per year. In the example, you would divide £32,500 by 10 years, which equals an average appreciation of £3,250 per year.
Tips and warnings
- Negative appreciation is known as depreciation. Deprecation means the value of the home is falling over time.
- Home sale prices do not account for the impact of inflation. For instance if you bought a home one year and sold it the next year for 2 per cent more than you bought it for, the value will have appreciated by 2 per cent. If, however, the inflation rate for that year was also 2 per cent, inflation would negate the increase in value.
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