Saturday 10 February 2018

What is my house really worth?

When you're thinking of moving, one of the first questions you're going to have is "what is my house worth if I sell it?" 

This is a natural place to start considering that what you sell your current house for will determine what you have available for your next purchase. So who decides the value of your house?

Let's start with who doesn't decide.

Your property's value is not decided by your real estate agent.  They're going to look at recent sales activity and current listings to try to figure out what your house should be listed at, based on actual market data.  But in the end, the seller has the final say on what the house gets listed at, as well as what offer they will accept.

A property's value is also not decided by an appraiser.  They go through a similar process to what agents do, looking at sales data, refining the numbers to a more detailed analysis of differences between properties.  But while their appraisal report may determine the value that a particular bank or lender may accept, they don't really decide the market value either - their job is still just to try to 'uncover' what the likely market value is.  If an appraisal comes in low, it's up to the seller to decide whether to reduce the selling price to make it go through.  Sometimes a seller will never get a better offer, but there have been plenty of times where I have seen a sale fail on a low appraisal, only to be successfully re-sold at a higher price with a new appraisal accepting the higher price... so was the original appraiser's opinion really right?  It was probably honest, but honest doesn't mean infallible, especially in an open market.

Seeing the seller's involvement in the process, you might start to think you decide the value as the owner.  But you'd be wrong.  The seller certainly factors into the selling process heavily, but the seller's opinion on the value doesn't matter if no one wants to pay that much. To exaggerate the point, you can list your typical single-family house at $10 million, but that doesn't mean buyers are going to line up to pay you that much.

Ultimately, it's those buyers in the marketplace that will decide the value of the property.  This gets forgotten in a hot sellers' market, but it remains true nonetheless - the buyer with the winning offer in a bidding war still set the price they were willing to pay for the property. If they hadn't been willing to pay that much, they wouldn't have made the offer.  And even in a hot market, there's a limit to how high you can list a property and get away with it.

The working definition of "market value" presented by the Canadian Real Estate Association is "the highest price in terms of money, that the property will bring to a willing seller if exposed for sale on the open market; allowing a reasonable time to find a willing buyer, buying with the knowledge of all the uses to which it is adapted and for which it can be legally used, and with neither buyer nor seller acting under necessity, compulsion nor peculiar and special circumstances."

A bit of a mouthful and some moving parts in there (ie. 'reasonable time' changes depending on market conditions), but essentially it's the most an informed buyer is willing to pay without unusual pressure or circumstances.

A good real estate professional will be looking at actual sales data in your area to try to estimate what this is, so their opinion is far from worthless - it's based on what real buyers have been willing to pay.  But in the end, it's still an opinion and actual performance in the market could easily vary either direction, because buyers can be unpredictable. 

When it's time to move, just make sure you choose an agent you trust and fully discuss pricing, marketing strategy and your expectations from the sale. 

If you'd like an opinion on your property's value, give me a call at 905-512-4069 or email and I'd be happy to help.

* not intended to solicit clients currently under contract

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