When
you are buying or selling your home, naturally,
your most important concern is getting
the best price. As a seller, you may have
lived in your home for years. You’ve
contributed towards the mortgage each
month. You’ve maintained your home.
And now, it’s only right that you
should reap the rewards of your efforts.
As a buyer, you want to ensure you are
paying fair value for a home. How then,
do you get fair market value for your
home? In this article we’ll explain,
specific house, present condition and
30 to 90 days, the three factors that
influence market value.
In this article, we refer to market value,
as it applies to single-family homes only.
Evaluation methods are different for apartments
and commercial properties.
The term, “market value,”
is a broad and confusing term. Consumers
shop in a store and pay the price indicated
on the price tag. A book is worth $18.95
according to the tag. A car is worth $15,000
because the price tag says it is. We rarely
question the value or worth placed on
these items. We just pay the price.
At the end of the season, if an item
did not sell, its value changes. The $18.95
book did not attract enough buyers. Therefore,
the store puts the book on sale to entice
people to buy the unsold books.
Initially, the market value of the book
was $18.95. However, when new titles arrive
on the shelf, or the subject of the book
is no longer popular, the market value
could drop to $9.95.
Therefore, market value is the price
that an item will sell for, within a reasonable
time period. When considering real estate,
“reasonable” refers to one
to three months.
When it comes to determining fair market
value on a home, the following definition
is helpful:
“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 Edmonton could
be worth $375,000. But if the exact same
home was located in St. Albert, it may
only be valued at $300,000.
Home prices also fluctuate 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.
