Real Estate Talk:
Home market evaluation
How evaluations are prepared in order to know the market price of a home
By Joseph Marovitch
I recently subscribed to StreetText, a program on Facebook that creates an ad, using my information, that asks potential sellers if they would like to have a market evaluation and know the price of their home in today’s market. When a potential seller clicks the ad, they are required to provide an address along with an email or phone number so I will know who to send the evaluation to.
For the most part, the system works if you direct it to the right area. However, many inquirers will leave an address but no email or phone number, or they will leave an email and/or phone number but no address. Others leave a city and contact information but no address. Finally, many do not provide details such as the number of bedrooms, bathrooms, and parking, which without an analysis cannot be performed.
Four factors determine the price of a property: location, condition, comparable sold and active property and how quickly the property must be sold.
So, for all those who want to know what their property is worth in order to sell or refinance, here is how an evaluation is prepared.
Four factors determine the price of a property:
- Comparable sold and active property
- How quickly the property must be sold
To prepare an evaluation we start by obtaining the following information:
- Year built
- How many square feet of living space?
- How many square feet is the lot?
- City evaluation
- Number of bedrooms
- Number of bathrooms
- Number of powder rooms
- Number of garage spaces
- Number of outdoor parking spaces
- Any other factors that can raise or lower the evaluation such as a new kitchen, in-ground pool, new bathroom, etc.
We then collect and compare the same information from all the active comparable listings to know what the competition is. After all, buyers, with their brokers, are not just visiting your house. Of course, the asking price on active listings is part broker expertise and the seller’s wishful thinking.
The real value of a property is in the accumulated information from comparable sold listings for the past 12 months.
Properties can be slightly different in various neighbourhoods. Some have a pool, some do not, some have an extra bedroom, others do not, some have a new kitchen with granite countertops while others have an older kitchen with melamine tops. Therefore, to allow for all the differences, the active and sold properties are broken down to price per square foot.
‘The real value of a property is in the accumulated information from comparable sold listings for the past 12 months.’
On average, the evaluation will include 4 or 5 active comparable listings and 4 or 5 sold listings. Using the price per square foot from the least to the most expensive properties, the evaluation will provide a range in which to ask and a range in which the property may sell.
Once the range is established, the final asking price will depend on the condition of the property, its location to schools, busy streets, quiet roads, parks and so on, and how quickly the seller must sell.
I always prefer to price a property slightly below the average market. This strategy generates more interest, visits, and offers. By pricing lower than most similar properties and generating more interest, we create a multiple offer scenario, which in many cases, especially in today’s market, can cause a property to sell for more than the asking price.
Note that a municipal evaluation is not the market price of a property. The municipal evaluation is comprised of sales in the area over a three-year period called the roll. Variations are considered, such as location to schools, busy roads, train tracks. The interior of some properties is also considered when renovations are performed, permits are requested and city inspectors inspect. If the city you live in is aware that you just installed a $100,000 kitchen in your home, the city will revaluate your property before three years and may raise your municipal evaluation to acquire more tax from you.
When deciding on an asking price, the municipal evaluation should be a consideration. If there are four similar properties for sale, including the seller’s property, and the municipal evaluation range of the four houses is $350,000 to $500,000, the seller does not want to be the house asking the most on the block with the lowest evaluation.
‘By pricing lower than most similar properties and generating more interest, we create a multiple offer scenario, which in many cases… can cause a property to sell for more than the asking price.’
For example, a buyer visits property (A), which is asking $800,000, has a municipal evaluation of $720,000 and is in excellent condition. The buyer then visits a similar property (B) in excellent condition, also asking $800,000 but the evaluation is $775,000. The buyer wanting to acquire the most value for their investment will buy property (B) with a higher evaluation. There is some factor in property (B) that makes the value higher, whether proximity to a park, fire station or school.
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Next article: Why NDG houses are in demand with prices rising?
State of the market
In today’s Financial Post there is an article by an economist at CIBC stating that, despite the pandemic, the price of homes is rising at an incredible pace. This may be so, but this is because there are fewer properties for sale and many more buyers. The law of supply and demand in basic high school economics states that low inventory will cause rising demand and increased prices.
‘… there is a chance the market will slow down as the economy feels the effect of lockdowns, reduced incomes and high debt.’
During this pandemic, sellers are not anxious to sell because there is a fear of strangers infected with COVID-19 entering the house. Buyers are scrambling to find a new home and it is not easy. As soon as a well-priced three-bedroom in a suburban area comes to market, buyers descend upon the property and bid for it.
However, there is a chance the market will slow down as the economy feels the effect of lockdowns, reduced incomes and high debt. There will also come a point where the government will want to collect back all the relief funds that have been provided.
Have a great week, stay safe!
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Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible for, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or email@example.com