When property owners make the important decision to sell a property in the current market, the first step is to always contact an experienced, licensed REALTOR® to schedule a confidential (and often complimentary) property evaluation.
Without the good advice of a REALTOR® and relying solely on municipal assessments; the opinions of family, friends, or neighbors; or your own opinion based on what you might have seen with a few list prices of similar properties on the market (perhaps ones that have not sold; have expired; are being sold by owner; and / or have been on the market twelve months) is simply insufficient and very often inaccurate. Even in the case of municipal assessments the data can be six months to a year old and will not include interior upgrades and miscellaneous property characteristics that REALTORS® will take into account for an evaluation. As a result (unbeknownst to many property owners) the municipal assessments can often be a wrong approximation of a property’s current value by up to tens of thousands of dollars – upward or downward. Other factors that do not affect value include but are not limited to the following: what a property owner paid for a property when they first bought it; the cost to rebuild the property today; the list price of a property that a property owner might be buying; and most importantly the fact a property owner may have spent ‘x’ thousands of dollars on improvements of itself has no guaranteed direct correlation to property value.
For example, as a licensed REALTOR®, when performing a property evaluation for a client, a large number of factors are closely analyzed that will affect the potential market value of the subject property relative to the others being compared:
- The Micro and Macro Location of the Property (i.e. Macro – overall zone within City; Micro – smaller location radius – e.g. across from a quiet park, or on a corner or facing a busy street)
- The Above Ground Living Area (i.e. not including living area of levels set below ground)
- The Number of Bedrooms and Washrooms (partial credit for dens and half washrooms)
- The Quality and Extent of Interior Upgrades (e.g. flooring, kitchen renovations, paint, etc.)
- The Quality and Extent of Functional Upgrades (e.g. furnace, hot water tank, foundation, etc.)
- The Quality and Extent of Exterior Upgrades (e.g. siding, landscaping, shingles, fencing, etc.)
- The Effective and Actual Age of the Structure (i.e. structure depreciation as a function of age – N/A for vacant lots)
- The Size of Garage and Sheds (e.g. single, double, triple, oversized, heated, insulated, etc.)
- The Level of Basement Development (e.g. partly-finished, no basement, suite, walkout, separate entrance, etc.)
- The Size and Shape of the Lot (e.g. pie-shaped, irregular, rectangular, double lot, small lot, etc.)
- Quality of Views (e.g. downtown view, park view, or presence of other unattractive views)
- Level of Noise (e.g. peaceful quiet park vs. noisy four-lane traffic or railroad crossings)
- Land Use Zoning and Title Restrictions (e.g. restrictions on development, restrictions on use)
- For Condos: Strata Level, Condo Fees, and Quality of Complex (i.e. what level the condo is on, how high the condo fees are vs. what the condo fees include, and how well the complex is managed including resident issues; level of reserve fund; building maintenance issues, etc.)
- For Acreages: Many Factors including but not limited to Wells, Septic Tanks, Proximity to Services; Quality and Uses of Land and Water; Other Structures; Level of Road and Utilities Access, etc.
- For Commercial: Investment / Comparative Analyses for Industrial, Multi-Family, Office / Retail, Institutional, etc. (including annual costs and revenues, investment ratios, cap rates, etc.)
- Other Unique Factors: unique factors are also analyzed for positive or negative value impacts (e.g. laundry set-up, fireplaces, level of fire and security protection, built-in vacuum systems, special features like decks and hot tubs, etc.)
- Inflation (and Deflation) Rates: if properties today are selling for 0.8% higher than properties only six months ago, comparable sales from six months ago must be correctly adjusted for inflation.
- Comparable Active Listings, Pending and Past Sales, etc. by licensed real estate brokerages. [Typically about +/- 10 comparable properties are analyzed that vary based on level of market activity - a high actives vs. sales ratio indicates a lower list price will be required to sell due to the increased competition and options for Buyers while a low actives vs. sales ratio indicates an environment where the list price can be set somewhat higher (within a reasonable range) due to limited Buyer options. It should be noted that markets change dynamically vs. time so a 'green-light' situation of no actives on the market can change rapidly within a timeframe of only 2 or 3 weeks.]
When analyzing the above factors, a REALTOR'S® experience is used to determine how much a negative or positive feature will affect the property value upwards or downwards. For example, if 250 different Buyers are shown one type of a specific property over a REALTOR'S® career, that experience is used to estimate how many dollars Buyers, on average, will penalize or reward a specific feature that a property has to offer when, if, and how much to make an offer or counter-offer to the Seller (e.g. an unfinished basement will cost a Seller $X,000 vs. another otherwise identical home that was sold recently with a professionally-finished basement). These upward or downward adjustments from the list prices of active listings and sale prices of sold listings create the series of ‘adjusted prices’ (i.e. a REALTOR'S® professional opinions of what Buyers who may be thinking of buying an active listing or have bought various past sold listings would pay for the Sellers’ property if they buy that property instead). A low adjusted price represents a Buyer may have achieved a great deal on the property they bought while a high adjusted price represents a Buyer may have overpaid for the property they bought.
From the adjusted prices, REALTORS® use experience to closely estimate which past sold listings were undersold, and which active listings will likely not sell within a reasonable timeframe (i.e. 60 or 90 days) at the current list price without a massive price reduction, which are used to generate a reasonable list price range for the Seller. This level of in-depth knowledge and insight is valuable to Seller clients who are looking for a good list price for their home to sell for as high as possible within a reasonable frame of time but yet not have the home under-sold or take too long to sell without massive $25K or $50K price reductions (although these occur in rare cases of a collapsing market). A REALTOR'S® goal (along with providing top quality service and expert advice) is to achieve the highest possible sale price (and relatively quick sale) when representing a Seller client and conversely to achieve the lowest possible purchase price (combined with a relatively quick purchase) when representing Buyers.
With knowing a very close approximation of a reasonable list price and sale price range, Sellers can then estimate their closing costs and how much they are likely to net from the property sale. Sellers maintain control of the list price and many try to initially ask for higher than the property can reasonably expect to sell for in the current market, in contrast to the best advice from their REALTOR®. Conversely, with more aggressive list prices, Sellers can often achieve the benefits of increased likelihood of: quantity of showings; multiple offers; unconditional offers; sales above list price; and / or quick possessions. To give an example of how sale prices can be affected by the initial list price, suppose a Seller (after receiving a property evaluation of $250K to $265K) decides to price a home aggressively at $250,000, more Buyers may view the home in the first few days and some Buyers may say ‘Wow – only $250,000!’ and offer them $255,000 in multiple offers. However, suppose the Seller instead tries to ‘hit the home run’ and asks $275,000 at the start of the listing – there might be several REALTOR® showings the first couple of weeks and Buyers might be balking at the price because of the location, or maybe the property needs a fair amount of upgrades, etc. Even if the Seller later drops the price to $250,000, immediately Buyers have a different attitude to the $250,000 because it has been on the market awhile and the Buyers might be tempted to offer less (say $235,000 or $240,000) because of this. Therefore it is quite possible that by asking more at the start of the MLS™ listing the Seller in the end achieves $15,000 or $20,000+ less on the eventual sale price. It is therefore an important lesson to remember: for the optimum sale price, it is usually best not to not set an initial list price too much higher than what the most optimistic Buyer would reasonably pay for your property, as based on your REALTOR'S® comparative market analysis.
In summary: whenever you, a family member, a friend, or an acquaintance are ready to sell a property that you own, do not assume that you already know for certain the market value simply based on the municipal assessment; from your own personal experience; or based on the opinion of a friend, family member, or neighbor. The first step is to do your research and contact the best qualified REALTOR® for an appointment to give you our best advice during a property evaluation. If you are satisfied with the market evaluation you receive, you should then consider the merits of hiring the REALTOR® and brokerage to handle the listing and sale of your property on the MLS™ and MLXChange for maximum market exposure (a REALTOR’S® value for Sellers extends well beyond the initial evaluation and continues with professional advice and service throughout all stages of the listing and the sale). By following these key steps, it will help to ensure you maximize return on your investment while helping to make the sale of your property go as smoothly and stress-free as possible.
[Article written and ©2010 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at MaxWell Realty in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you are serious about selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager) or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.