How
to determine your home’s worth
While
sellers differ in the reasons they want to sell
a home, they all have one thing in common –
the goal is to sell their home, fast and for
best price. Before you list your home for sale,
you have to establish the price. Prior to this
step, you need to have some idea of what the
house is worth. This doesn’t mean the
amount you bought it for, or how you have since
upgraded your home. Rather, the worth of your
home really depends upon the price a buyer will
pay. This translates into the “market
value” of a home.
When it comes to real estate, “Market
value is the price at which a particular house,
in its current condition, will sell within 30
to 90 days.”
Three criteria make up this definition;
- Specific house
- Present condition
- 30 to 90 days
To determine a home’s value, most people
use an appraisal or comparative market evaluations.
An appraisal, conducted by a certified appraiser,
is a professional opinion of a property’s
market value, based on recent sales of comparable
properties, location, square footage, construction
quality, floor plan, shopping, schools, transportation,
etc. On average, this type of evaluation costs
$300 - $500. Lenders require an appraisal as
part of the mortgage application process.
A comparative market evaluation (CMA), performed
by a REALTOR®, is a free, informal
estimate of market value, based on sales of
comparable properties.
Specific
house
Market value is limited to your specific house.
The location and neighborhood of your particular
home is the starting point for this determination.
The exact same house in another city, or another
neighborhood across town, does not matter for
your determination.
For example, a house in St. Albert could be
worth $375,000. But if the exact same home was
located in Edmonton, it may only be valued at
$300,000.
Home prices also fluctutate significantly from
city to city and from neighborhood to neighborhood.
Therefore, when considering the market value
of your home, it must be compared to similar
homes in the same or adjoning neighborhoods.
Present
condition
The second factor in determining market value
is the condition of your home. Is it in “showing”
condition? Does it need some improvements? The
condition of your home determines the number
of buyers who may want to view and purchase
the property. This relates to the time your
home will remain on the market before it sells.
Most home buyers want a reasonably priced home,
in good condition. They may look less favourably
on a home that requires major work.
Some people determine a market value by subtracting
the amount of estimated fix-up costs from the
selling price. This may not be the best way
to evaluate a home. A home in good condition
sells for $80,000. A home you may like needs
$4,000 in repairs. This may not equate to a
market value of $76,000 ($80,000 - $4,000).
Why not?
Homes that require work take longer to sell.
To attract more buyers, the price may have to
be reduced beyond the cost of the repairs. It’s
all a matter of how much someone is willing
to pay for these repairs. Additionally, determining
market value for a home that needs some work,
is not an exact science. Some REALTORS®
suggest subtracting approximately two to three
times the amount of the fix-up costs.
30
to 90 days
In most markets, a home will sell within 30
to 90 days. If it doesn’t, the price is
probably too high. Even homes that are “perfect”
won’t sell in this time, if the price
is too high.
On the opposite end: if a house sells within
a short period, perhaps the asking price was
too low. Or, it could be a hot market. When
there are housing shortages, or fear of rising
prices, many homes are purchased within a matter
of days of the listing.
Professional
opinion is essential
The real estate market is always changing.
This includes the entire picture, and particular
areas as well. Many factors determine the value
of a home including type of market, market conditions,
recent sales in your neighbourhood, condition
of the home, your urgency to sell, financing,
additional items (such as redecorating allowance,
appliances), and outstanding repairs.
In a buyers market, the supply of homes on
the market exceeds demand. In this case, buyers
take their time in choosing a home, and when
they negotiate they have more leverage.
In a seller’s market, the number of potential
buyers exceeds the supply of homes on the market.
Prices may be higher or perhaps climbing. Buying
decisions must be made quickly. Conditional
offers may be rejected.
In a balanced market, the number of homes on
the market is roughly equal to the demand.Homes
sell within a reasonable time period. Prices
generally remain stable. There is less tension
among buyers and sellers. There is a reasonable
number of homes to choose from.
Price is very important when you are selling
your home. A home that is overpriced could remain
on the market too long. Price reductions may
be necessary to bring it in line with current
pricing. In the end, the seller may receive
less than if the home was priced correctly.
If the price is too low, the home could be
perceived as inferior. It could also linger
on the market for an extended period. It may
garner some attention. However, buyers may offer
a price even less than the asking price, in
anticipation of future problems with the home.
On the other hand, some sellers may require
a quick sale and a lower price for a valid reason.
A REALTOR® can help you establish
a fair “worth”, These individuals
are trained professionals who have certification
in numerous areas including real estate law,
economics, marketing and professional practice.
Usually, the price of a home is set slightly
higher than the worth, to give a little "bargaining
space."
Also keep in mind that when you list with a
professional REALTOR®, you are
entering a legal relationship. When you sign
the listing agreement, you give your agent the
authority to put your home on the market for
a specified time. If the house sells during
this time, you must pay the REALTOR®
the agreed commission. Additionally, if the
homes sells shortly after the specified period
in the contract, due to the REALTOR®’s
efforts, you must also pay the commission.
