Whether you’re buying or selling, estimating a property’s market value requires you to consider an array of factors.
To help you see clearly and avoid certain traps, here are some things to keep in mind.
Municipal assessment
The value that municipalities use for taxation purposes is not a good reference point when setting the market value. As it is established 18 months before it comes into effect and serves for 3 years, it does not always reflect recent fluctuations in the market.
As such, the market value can exceed the municipal assessment by many percentage points. A 2015 Centris Statistics study shows that market prices in a Montreal neighbourhood exceeded municipal assessments by 38%. Although this example is extreme, the opposite trend has also been observed in certain areas.1
Regardless of the situation, even if a municipal assessment can provide a very general idea, it’s best not to rely on it. Buying below or selling above the municipal assessment does not guarantee a good deal.
Market value assessment methods
There is more than one way to assess a property’s market value, but the “comparison approach” is the most widespread on account of its simplicity. It consists of comparing the property to others with similar features that have recently been sold in the same area. It is normally recommended to use at least 4 comparison points, and to proceed to positive or negative adjustments according to differences.
For example, if your comparison properties all have double garages, whereas you only have a single garage, you’ll have to lower your price. A professional is obviously better equipped to make these adjustments, but this approach while still provide you with a good starting point.
In its most basic form, the replacement cost approach consists of calculating the value of the land and the full replacement value for the property and the land. Note that other elements factor into the equation. It is mostly used when it is difficult to find comparables (inactive market, unique property, new construction).
For rental properties, the income approach basically consists of applying a discount rate to the net income.
In both previous cases, unless you have a solid knowledge of appraisal and real estate finance, you should probably call a professional.
Appraisers
Given the importance of a real estate transaction, the cost of hiring a professional appraiser is usually worth it, if only for the expertise they bring. For a bungalow or condo type property, you’re looking at anywhere between $400 and $600.
If the appraisal is lower than what you’d hoped for, it may be worth it to make a few repairs. If that’s the case, be sure to check out our article “How to find the right building contractor”.
When the time comes to choose your service provider, we recommend dealing with an Ordre des évaluateurs agréés du Québec (OAEQ) member in good standing. Professional appraisers that aren’t members can also provide excellent service, but unlike their licensed colleagues, they are not bound by a strict Professional Code.
The primary role of the appraiser is to give information relative to the value of the property, based on the factors recognized by their profession. Of course, real estate brokers do have a certain knowledge in valuation and, in many cases, can correctly estimate the value of a given property. However, it is strongly recommended to rely on the expertise of an independent professional.
Your needs and wishes
Even if you call upon an expert, at the end of the day it’s still just an estimate. Your personal situation will also have an impact on your selling or buying price.
For example, if the supply is greater than the demand in the area you’re interested in, take the time to shop around and negotiate.
If you’re looking to find out more about the art of negotiation, be sure to read our article, “Negotiation tips when buying or selling a house”.
Key takeaways
- The value that municipalities use for taxation purposes is not a good reference point when setting the market value.
- Given the importance of a real estate transaction, the cost of hiring a professional appraiser is usually worth it, if only for the expertise they bring. For a bungalow or condo type property, you’re looking at anywhere between $400 and $600.
- Even if you call upon an expert, at the end of the day it’s still just an estimate. Your personal situation will also have an impact on your selling or buying price.
1. Source : http://www.lapresse.ca/maison/immobilier/201603/31/01-4966194-que-vaut-levaluation-municipale.php