How to Spot the Value in a Property
So, you're ready to dive into the real estate market by purchasing a new home or investment property. That's an exciting leap to take, and house hunting is half the fun!
But purchasing property isn't all home hunting and open house tours! When looking at prospective homes, especially those you plan to invest serious funds in, it's important to know the value of the property.
We're talkin' more than just the listing price ;)
Consider the market
You've probably heard of terms such as "buyer's market" and "seller's market," and depending on the climate of the real estate market during your search, you may be impacted by either of those situations.
A "buyer's market" denotes that there are more listings than there is demand, meaning more properties are for sale than there are buyers looking to purchase. In contrast, a "seller's market" refers to there being a considerable number of buyers with fewer properties on the market. Thus, it comes down to supply and demand.
Considering whether the market is favourable for buying at the time of your entering the real estate process will help you better determine the value in a property; after all, you don't want to buy a home on a whim simply because it's "cheap," or because you're concerned there won't be properties available "later on." This leads us to my second point...
The price is right...sometimes
Realtors assisting their clients in selling their home typically provide advice on the best or most conducive listing price for their property based on a plethora of factors; one of which is comparables.
Essentially, the Realtor will perform research to determine the comps in the area and the value of similar homes in the same or similar neighborhoods to help discern what type of listing price makes sense for the property they are helping to sell; though this isn't the only factor in determining a listing price, it does give a more accurate consideration of realistic pricing.
Sometimes, homeowners may be tempted to sell their property for a listing price that is unrealistic, due to factors such as emotional attachment. Your Realtor's responsibility (one of many) is to help you understand when a home is priced realistically, and whether the price makes sense for the value of other comparable homes in the same neighborhood which have recently sold with similar features, characteristics, etc.
Factor in renovations and home updates
Not every home you consider for purchase will be "perfect," meaning you may spot some aspects of a property you'd be likely to change, update or renovate.
When looking through a home, there are a few things to keep an eye out for as you tour the property. You may ask yourself, for example, whether the kitchen would need new countertops or backsplash; will the main level need updated flooring, or will you feel compelled to renovate the master ensuite bathroom?
If you find a home you love but it doesn't have all of your "must haves," you may need to consider renovations. Similarly, many homes may require more structural updates which detract from the overall value of the home (such as a leaky basement or an outdated roof). These are critical factors to consider as you look through properties because they impact the ultimate value and price of the home (especially over time).
Don't forget the neighbourhood
The location of your prospective home adds value to the property; while this may not sound so surprising, location is a key aspect of home ownership when you begin to look at the value of one home in one neighbourhood versus a similar home in a different neighbourhood.
Let' say, for example, that you walk through two different homes. Both are 2 bedroom, 2 bathroom bungalows. The first is located in a neighbourhood where homes are moderately priced, and it has a finished basement, but has a low walkability score. The second is a similar home in a different neighbourhood with a high walkability score, but it doesn't have a finished basement nor extra parking like the first home. What is the value of each home from a market and personal perspective?
These are seemingly small yet very important considerations to give each property you look through, and this is why Realtors perform comparative market analyses (or "CMAs") for their clients!
Does it have what you need?
It can be frustrating to tour homes which have everything you want - like a jacuzzi bathtub in the master bathroom, or a chef-inspired kitchen fit for a food king - but few of the things you need - such as a certain number of bedrooms, a finished basement, or a large enough backyard.
This point of frustration is usually the stage where home buyers have to consider their "must haves" - a list, if you will, of things you actually need in a home that aren't quick fixes. For example, you can easily update a bathroom with a new tub, or replace outdated appliances in a kitchen, but you can't always change a home's footprint to accommodate an outdoor oasis or add extra bedrooms on a whim.
I often recommend to my clients that they have a Buyer's Checklist - an overview of things they need to get together and keep in mind when looking for a property which will ultimately give them what they truly need. This ensures that buyers can better find a home that suits them as opposed to purchasing a property based on wants that are likely to change! Ultimately, the value in a home is difficult to spot if you're unaware of the value it has for you and your lifestyle.