July 9, 2020 | determining value
Sometimes determining the value of your property appears easy. A condo unit in your building with the exact same layout and design sells a week before you list your property. The market is relatively stable. Chances are this should give you a very good idea of what price you should expect from your property.
Of course, life is not always so straight forward. Determining the value of your property can be tougher than many people believe. It’s a mix of hard data and subjective hunches you or a professional someone may have about the market. At the end of the day, your property is only worth as much as someone is willing to pay for it.
Despite this, banks often use appraisers to determine the value of a property once it has been purchased. They rely on a lot of data, and they often look at the property in question. At the end of the day, these appraisers often do not know the neighbourhoods in which they appraise. They lean heavier on hard data to determine value. Though many people would think this would lead to a more accurate market price, I have seen values on the same property come in with a gap of $100,000 with two different appraisers who did their evaluations in the same week. So, it’s not always an easy target.
You also have MPAC, the Municipal Property Assessment Corporation, that tells us how much they believe your property is worth. You do want these folks to evaluate your property at a lower number. Your property tax is based on their values. They usually re-evaluate your properties every four years. They are usually known for under-evaluating properties, but they have been known to over-evaluate as well. Like bank appraisers, they rely heavily on hard data. Note that they will never appraise a property at a higher value than what it was purchased.
Most people will look to determine the value of their property when it comes time to sell. Before they list their property, sellers often have real estate salespeople or some kind of consultant come through their property to give them a sense of value. Like appraisers and MPAC, real estate salespeople do not always nail the price. Some simply don’t have the experience to determine a price. Some will tell a seller a higher number than the property will likely sell at to obtain the listing. Some sellers will think the salesperson who tells them the highest number will be able to obtain that number. They are not always right.
If sellers are using a well-vetted real estate salesperson, that salesperson will usually have a reasonable range that property will sell within. That agent will know what projects or preparations should be done to maximize the selling price.
In determining the list price, here are some of the things that will affect value:
I think this is the biggest factor when looking at comparable solds for your property. Emphasis on “recent”. Just because a house almost identical to your house sold last year for X amount of dollars, there is no way your house will be same value now. If it’s not a recent sale, most comparable solds are not going to be very helpful. If it is a recent sale, you have a good sense of how the market is performing. A sale from a year ago was happening in a very different market.
STATE OF RENOVATION
This is more subjective when it comes to price, but we can all agree that a fully renovated condo unit with a new kitchen, new washroom and floors will sell for more than one with a dated, old kitchen with appliances that don’t work and floors with water stains. This is where hard data misses the mark. And this is where online real estate estimate algorithms often fail. They compare square footage and size when value is worked out, but there is no room for subjectivity. Even when you compare a renovated washroom to a renovated washroom, the design can make a impact on the price. That’s why the Zillow estimates, or “estimates”, can be off. Same goes for any online site. There is a component to determining value that relies on actually seeing the property and knowing how a given neighbourhood performs. Other things that won’t be picked up by data: Who lives next door or if there is a condo that is going to be built next to you that will block most of your light.
This is a bigger deal than most people think. How you market your home and to whom can make a significant difference on what price your house brings you. Just dumping in on the MLS is not always going to get the best results. The right people need to be reached, and the strategy needs to be targeting the people who will likely buy your property. There are times when you should not stage your home and there are times when it will net you much more money than has been invested in the staging and prep work.
THE CURRENT MARKET
This relates to my first point. This can be a tough one since the market can change very quickly, sometimes from week to week. To keep things very simple, you should begin by asking yourself: Is it a buyer’s market or a seller’s market? Once you have determined that, you can figure out the best strategy to put forward. If there are more buyers than sellers in your neighbourhbood and your property will generate interest, then you may wish to employ a strategy where you review offers after a week on the market in anticipation of having several offers on the property. Ideally buyers will compete for your property to drive up the price. When there are more sellers than buyers, you try a different strategy. Whatever strategy you decide to use, you should remain nimble. If the market shifts quickly, like it did between March 15 and 30th of 2020 when Covid-19 shut down, you may need to shift strategies. You may need to terminate the listing until there is a better time or try something different. You need to be aware of the feedback you are receiving from buyers going through the property. If buyers aren’t buying your property at the price you have, then you should know why.
Determining the value of a property is often a combination of knowing the stats, and consulting someone who understands the more subjective elements of figuring out a price. It is part stats and part art. The left and right side of the brain should participate.