We regularly encounter situations where important differences between properties were glossed over because the people involved couldn’t figure out a way to assign a value to the difference.
At best, that results in no agreement as both parties realize it is an important difference, but they can’t agree on what it’s worth.
At worst, it results in an unfair transaction, where the difference is dismissed and the agreed upon sale price is actually not justified.
Let’s consider two examples of significant differences and how the right approach can result in a win-win scenario.
Example #1 – Large Terrace
While many condominium apartments have balconies, there are a relatively small number of units in the city that have large terraces. When such a unit lists for sale, the question that is asked is what is the extra square footage actually worth?
A small balcony technically serves the same purpose as a large terrace, in that it provides direct access to an outdoor space for the residents of the unit. The size of the outdoor space can however dictate the possible use for the space. Some balconies are barely large enough for more than a chair and a table and other terraces can fit a dinner party for six with space left over for a BBQ and garden area.
The most typical approach for a unique attribute like a large terrace is to say it adds to the value of the property but not specify how much in dollar terms. While that be understandable, it means that a seller may undervalue their home in the list and sale price of the unit.
Our approach involves analyzing past sales of units in the building and developing a range of low to high price per sf for recent sales to develop an average price per sf that units are currently realizing. When we parse those sales by those with balconies and those without, and then look further for exceptional units with large terraces, we are able to put a number to the value of the terrace.
In one recent analysis we did for a client, the average price per sf for units without balconies was $1,082 per sf. For units with balconies, it went up to $1,286 per sf. The exceptional units with large terraces commanded an even higher $1,467 per sf. By doing this analysis, we were able to provide our client, who owns a unit with a relatively typical balcony, a recommended sale price that takes into account the difference between their balcony and the terraces of otherwise comparable sales.
Example #2 – Secondary Suite
Another housing aspect that can be hard to value is when a home has a secondary income suite contained with the house.
The most common approach with secondary suites is to assess the rental rate and use that monthly income to arrive at how much of the mortgage amount could be paid for by that rental income at current mortgage rates. For example, a $1,400 basement apartment would generate income to cover approximately $300,000 of a mortgage at a typical term and amortization schedule.
Our approach takes this as a starting point and then gathers data related to the price per sf being realized for recent comparable sales in the neighbourhood. We use detailed residential floor area reports purchased from MPAC to accurately use the above and below grade space in each sale to determine what premium houses with an income suite are realizing. This is an important step as it takes into account the lost useable space for the homeowner when they rent out the income suite. Without this additional analysis, it can be easy to overvalue the benefit of an income suite within a home.
A similar approach can be taken for secondary dwellings such as laneway housing or a garden suite. By determining rental rates for such units and calculating the mortgage payments covered by that income, you can arrive at an estimated additional value. Given such units are located outside the home and are making better use of otherwise under-utilized land on the property, you don’t need to calculate the “lost” space in looking at other recent sales.
When you are considering selling a property that has an unusual aspect, or where recent comparable sales possessed an unusual aspect, you need to work with agents who know how to do a deep dive into the data to arrive at an accurate value for your home. This allows you to make sure you’re not leaving any money on the table and also allows your agent to provide an understandable story for buyers as to why you’re home is worth that price.
If that sounds appealing, don’t hesitate to get in touch.