There has been a fair amount of press lately about the possibility of the housing market currently experiencing a bubble. The Toronto Real Estate Board recently stated that prices were up 10% over last year. The US, and in some areas of Canada, prices are falling or stable. I often stress that your housing market is local, and you need to look at specifics to see what is happening to the market price of your home.
The New York Times wrote
Even in the best of times, it’s hard for individuals to objectively value their homes, which often reflect their sense of self and personal style. Making things even more difficult has been general market inactivity lately, if not paralysis, which has provided little in the way of pricing guidance. But by using online resources, investigating neighbourhood trends, consulting real estate experts and perhaps even asking the opinions of brutally honest friends, homeowners can arrive at a reasonably accurate appraisal even in these uncertain times.
Although we are not experiencing the paralysis in our market, we do have uncertainty regarding how long this increase will last, what is going to happen to the economy, and so on.
Putting all factors in the mix, makes the sale of a house complex and downright tricky to negotiate for both the buyer and the seller.
Being inside the real estate market, I look at a couple of different things when I am looking at setting the listing price of a home for sale.
I look at price changes. I look at the price that the person paid for the home when they bought it all those years ago. Using statistics that I have collected, I can look at the change in house prices in general, in that area, over the period between the purchase and the potential sale. It will give me a ball park to look at for the price.
I also look at the tax assessment price. I look at other homes in the area that have sold and compare their assessed value to the sale price. I use the same ratio to get an approximation for current value on the home that I am working up.
The last area to look is comparable sales. In most areas, I find homes that have sold recently that are similar to the home in question. It can be considered that the last price is close to the market price.
Buyer agents can do the same research when helping their clients to select an offer price. Buyers, in general, are not going to spend a lot more than other buyers who bought in the area. We also need to consider that the banks look at comparable homes when they are deciding on how big a mortgage they will allow the buyer to carry on any particular home.
Looking at all of this information, the homeowner and I will set a price that is our best guess for what buyers will be willing to pay. Sometimes, we need to make adjustments to the list price to find the true market value.
The bottom line is that the only time we know the true market value of your home is when you accept an offer from a willing buyer. That price is your market value.