What’s it Worth?
2 min read
Valuing Properties in an adjusting market
It’s challenging in a rapidly changing market to assess a home’s value accurately. And yet, consumers expect us to know.
Agents struggled to value properties during the pandemic as prices increased weekly, and now that we are seeing an adjusting market, a similar, albeit different, challenge exists.
Estimating market value isn’t a straightforward mathematical equation. The definition of market value involves the psychology of buyers and sellers, among other nuanced and complex influences.
The Appraisal Institute of Canada defines market value as:
“The most probable price which a property should bring in a competitive and open market as of the specific date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.”
Pretty complicated definition. The parts that make it nuanced are specific date, parties acting prudently and knowledgeably, and no undue stimulus—lots of room for ambiguity here.
There are several different approaches to estimating value. The most common method used by real estate agents in the Competitive Market Approach (CMA). This approach looks at similar properties sold recently and makes adjustments for variables between the properties and timing. A CMA tells us what a different buyer was willing to pay for a different property in what might have been a different market. Not exactly science. When market conditions are changing quickly, the CMA is less accurate.
While an appraiser might be able to use traditional methods to establish the value today, in a falling market, realtors need to anticipate what the value might be tomorrow or next week when the property gets to market.
Anticipating the market is tricky. Realtors need to assess the buyer pool’s psychology, the competitive listings’ attractiveness, and the macroeconomic conditions affecting both the buyers and sellers.
When there are few buyers in the market, the attractiveness of your listing matters.
Yes, preparing the home for sale and showcasing its strongest assets but also being priced ahead of the market is essential. It’s hard for sellers to price below their competition, but it is the most effective way to generate an offer.
Many agents say that an offer came in way below market. Are you sure? If the seller wants or needs to sell and the only qualified buyers are making offers well below the asking price, we might want to ask if our internal biases are interfering with the dealmaking process—more on that next week.