As of the start of June, 2022, most real estate markets in the GTA are shifting away from the strong seller’s market we’ve seen for the past two years.  In many areas, we’re in a balanced market and in a few we’re actually seeing the beginnings of a buyer’s market.

As the market is shifting, establishing actual value for a home is critically important.  We often say that buyers live in the future and sellers live in the past, in that buyers think about what a home is going to be worth, and sellers focus on what nearby home have sold for recently.  Buyers are very worried right now as there is lots of media focus on the possibility of a housing correction or even crash.  If you can’t provide a good argument for why the home is worth what we’re asking now, they will sit on the sidelines and wait to see what comes next.

Within our team we follow an extremely detailed valuation process and we thought I’d share the two crucial elements we look at in order to build a story around our price – and why buyers should pay it.

Logic

One half of the buying story is always built around logic.  While you may think that in the frenzy we’ve seen in the past few years that logic is not a factor in pricing, it really has always remained a key component.

While buyers have paid significant premiums on homes, there has always been an element of logic to their thinking.  If a home for sale is down the street from a similar home that had a smaller backyard and one less bedroom, paying more for it makes sense.  If everyone is saying prices keep going up, paying a significant amount more still makes sense.  After all, it’s a better home, and it will be worth more soon.

When we consider how much a property is worth (whether we’re selling it or considering buying it), we look at the numbers from a few different perspectives.

• How has the market in which the home is located changed over time and where was the home situated with the market at the time it was purchased? As an example, if a home sold for $750,000 in 2015, at a time when the average sale price was $825,000 for that home type in that area, the home was “valued” at 10% lower than the average.  If the average now is $1.2M, and if we assume the same discount applies, the market would value the home at 10% less than that, or $1.08M.
• When we look at recent, comparable sales, what price per sf did those homes realize on their sale? If a house sold for $950,000 and had square footage of 1,780 sf, it sold for about $534 per sf.  If the home we’re selling or considering buying has and extra 300 sf, that would mean it would sell for about $160,000 more based on the price per sf.
• While they are often very out of date, we can also use MPAC assessed values as a proxy for the worth of a home when comparing one against another. MPAC uses over 150 factors to determine the assessed value of a home, and if we know a neighbour with a number of small differences sold for $1M and were assessed at $700K, we can determine the estimated value of another home that was assessed at $840K (which is 20% higher) to be worth $1.2M.

We use this sort of review in order to gather a number of different estimated values.  While any one approach can be prone to inaccuracy due to sample size, market variations and other factors, by looking at a home from a number of different perspectives, we get a very clear sense of what it is worth.  This is, by design, more accurate than simply taking a recent sale and saying it’s maybe a bit more or less based on perceived attributes or deficiencies.

When we work for sellers, we use this work to justify our price.  “We’re worth X because we’re X% bigger and the average price per sf for homes like ours is X.  Also, we’re assessed at X dollars more than that recent sale, which means we should sell for X dollar more.”

When we work for buyers, we use this work to make sure we know what is actually a fair price for the home.  We won’t overpay, because we know the numbers on the comparable properties that the listing agent tells us.  Sometimes, we do our work and realize this is a great opportunity for our buyers, as the seller and their agent failed to realize that they’ve underpriced the home because they didn’t do the review we did.

When you have some logic for why a home is worth a particular price, it can make a huge difference in the eyes of some buyers.  Many people prefer to have a logical rationale for their decision, even if that logic merely helps support their emotional reaction to the home.  That leads us to the next element of a successful pricing strategy.

Emotion

While a logical case for why a home is worth a particular price can be very impactful, it is often said that logic makes you think, but emotion makes you act.

Even when it comes to investment properties where one would think it is all about the numbers, investors consider how the purchase makes them feel.  We’ve had a number of investors who declined to buy a property that had great numbers due to the feeling that it would be a big headache to own and oversee.  Emotion is a crucial component to both the decision to buy or sell, as well as to the price that is worth paying.

When we consider how much a property is worth (whether we’re selling it or considering buying it), we look at the feeling of the home from a few different perspectives.

• Does the home have intrinsic values that will resonate with buyers, now or in the future? For example, a condo with views of the city skyline will hold value and be more valuable than a condo with views of the parking garage or garbage collection area.  An another example would be a house that is facing a pond, which is going to be more appealing than a home that faces another row of homes.
• How does the home fit with the type of people who most want to live in the area? For freehold properties, a home that is designed and has a lay out that is suitable for a young single person will be worth less than a more typical, family home, if the area is popular with families due to a desirable school district.  On the condo side, a hip, urban loft that is located within a dated building will always have trouble commanding as high a price due to that disconnect.
• What work would need to be done to alleviate concerns or deficiencies within the home? Many sellers discount the impact that such issues have on desirability in the minds of buyers and tend to think of them only in logical, cost terms.  In reality, it isn’t simply the cost to renovate or repair the issue, but the time, the energy, the risk and uncertainty that goes into addressing the issue.

When we work with sellers, we prepare homes for sale in ways that increase the emotional appeal to the type of buyer we are targeting.  We highlight the best, intrinsic aspects of the home, we style and stage the home to reflect what buyers will want to see and we either do the work to address deficiencies or we have detailed estimates and workups for the cost and time to do so.  When we combine all of these aspects, we have a home that feels right for the buyer, which means the logical case we have built for the price is accepted or even exceeded.

When we work with buyers, we look past the glitz of a staged property to search for any fundamental issues with the property that will limit appreciation over time.  We identify ways in which the home could be changed in order to reflect how our buyers live and we look into what it would actually cost in time and resources to fix any existing issues.

When you combine a logical review with an understanding of emotional factors, there is a clear and compelling case that can be made for the value for any specific home.  Whether it is on the selling side or the buying side, when your agent does this work you end up with the best result for you in the transaction.  If that sounds appealing, don’t hesitate to get in touch!

While where a property is located is undeniably important, there are two other variables that have equal impact.  In addition to location, all properties also have a price and a set of features or attributes.

Each variable is tied to the other two and changing one impacts the others.

Every buyer of a home approaches their purchase with their own specific mix of what is important to them and it is rarely the case that all three variables are given equal weight.  Let’s look at how to optimize the result for you as a buyer or seller by making one of the variables your primary focus.

Location Comes First

As it says in its name, real estate is about physical, actual property, and that property has to be located somewhere.  Location is undoubtedly crucial in real estate, for both objective and subjective reasons.

For buyers, location is most often important due to subjective reasons – proximity to work, being within a certain school catchment area for the kids, or simply being close to friends and family.  If you’re focused on buying in a particular location for any of these types of reasons, you need to be as flexible as possible when it comes to the features of the home and the price you’re willing to pay.  Remember to take the very real benefits to you of the home’s location into account when you’re comparing against other properties that might be lower priced or have more desirable features.

For sellers, location discussions are typically focused on objective reasons – a short walk to a nice retail stretch with shops and restaurants, easy access to highways or transit, or being situated in a mature neighbourhood with trees.  If you’re selling a home that is blessed with a number of objective reasons as to why it is well located, you (and your agent) need to make the location a central part to your listing story.  They aren’t simply buying your home, they’re buying into living where the home is located.  If you’re missing features that might be appealing to buyers, you can still command a good price based simply on location.

Features Make It A Home

During the COVID pandemic, we saw location decrease in importance for many people.  Whether it was for subjective reasons such as no longer needing to keep a short commute to work due to a shift to working from home, or objective reasons like a lessened ability to enjoy the nearby retail stretch with restaurants and shops, many people chose to focus on features rather than location.

For buyers, focusing on the set of features or attributes of a home over location often offers a significant break on the price.  We often see very similar homes sell for very different prices depending on the location.  If you’re focused on a particular type of home with certain attributes, then be very open to where you will live.  Structure your search around these desired attributes and you will quickly see that you can get more home (whether that means bigger, better or simply better suited to you) for the same budget.

For sellers, a home that is primarily being sold based on its features and attributes needs to present very well inside.  If you need to ask buyers to forgive some lacking elements related to location, you better be making up for it by providing the features they will love in the home.  While over-improving a home in a less desirable location is a genuine problem, you can and should work to make your home show as one of the best in the area.

Price Matters Most

Many people assume that price is the most important variable in a real estate equation.  While this is understandable, it is wrong given real estate is not comprised of standard products with limited differentiation.  As we’ve discussed, location and features are both fundamental variables and within each property there are a multitude of differences from another, some large and some small.  Some buyers do, however, focus heavily on price and there ways for such buyers – and sellers who will be dealing with them – to optimize the result.

For buyers, the cost of the home can and should be an important part of your purchase decision.  If price is absolutely crucial for you, then you need to gain a good understanding of where you can get the most house (best mix of features and attributes), in the best possible neighbourhood (location) for a certain price.  By focusing your search on areas that are lower-priced than other areas, you then only need to seek out the best option in that area with your budget.  It doesn’t make it easy, but it is far more achievable than looking for a lower priced property in an area that commands higher prices than your budget.

For sellers, when we talk about a situation where price matters most to buyers, you need to think carefully about any upgrades or expenditures you make on the home that you are hoping to recoup from the buyer in the form of a higher sale price when you sell.  If your does not do well on either the location or the features side of the equation, you must make up for it on the price side.  We always recommend sellers in such situations focus on any negative aspects of the home and work to bring them up to at least a neutral.  A dated kitchen is not a negative and should not be renovated in such cases.  A damaged countertop or broken tiles, however, are negatives that may have a large impact on the impression and therefore the sale price of the home.

It is simple to say that real estate is just about location, price and features, but these three variables influence each other in very complex ways.

Price is often wrongly considered to be only on the result side of the property equation, such as location plus features, equals price.  This is short-sighted and fails to recognize that price is a variable, not just a result.

As we’ve just reviewed, sometimes location is the focus, where buyers say what price can I pay, what features do I want, in the location that I need.  Other times, features matter most, with buyers looking for a particular size, type or finish in a home, and willing to pay within a certain range for it, in any number of locations.

As all transactions require both a buyer and seller, it is always worth it for both sides of the transaction to put themselves in the shoes of the other side.  By understanding what someone focusing on location values, or what’s important to someone who cares most about the price, or what it means for someone thinking about the home’s features, you can adjust your approach and get a better result.  If that sounds appealing and you want to work with agents who understand, get in touch.

One of the most common areas of confusion for buyers and sellers is the different approaches to listing a home for sale.

• One involves listing a below-market price with a set offer date, on the hopes that a bidding war will take place on the offer date, and the home sell for significantly over the (underpriced) list price.
• The other is listing at a price the seller feels is fair and selling for that price, or typically a little bit below it after some negotiations.

We’ve previously talked about these two approaches and why and when it makes sense to do one over the other.

We know that it can be confusing, and we wanted to do an analysis of two areas and two different markets to see what is happening right now and what is working best right now.

We looked at what approach sellers are taking for detached homes in High Park and condo apartments in Mimico.  Two very different markets with two very different approaches.  Here’s our analysis of the data as well as the insights we gathered from reviewing it.

Detached Houses in High Park

In July 2021, we had 10 detached houses listed for sale in the High Park-Swansea MLS community.

What did they do?

60% of the listings set an offer date and were holding back on offers until that date.  The remaining 40% were listed with offers being accepted anytime.

How did it work out?

For the six houses that had offer dates, four are now sold, one failed to sell on the offer date and is still for sale and one has the offer date set for early August.  Two of the four that sold were bought by a buyer who submitted a pre-emptive bid before the offer date.  The other two sold on the offer date.

For the four houses that were accepting offers anytime, one sold and the other three remain on the market.

What does it mean?

With only ten listings, it can be dangerous to assume too much causation or correlation, but there are some interesting lessons from our analysis.

• The majority of sellers in High Park are still holding back on offers and it is largely a successful strategy, with 67% of the listings selling either before or on offer date.
• In contrast, less than half of sellers in High Park are taking offers at any point and only 25% of those sellers have been successful in selling as of yet.
• If you’re looking to sell a typical family home in the area, listing below market value and holding back offers to a specific date is the recommended approach.
• If you’re looking to buy a typical family home in the area, expect that most listings will have an offer date and the eventual sale price is around 112% of the list price.

Every home has its own specific situation so if you’re considering selling, make sure your agent considers the attributes and market for your home.

Condo Apartments in Mimico

In July 2021, we had 169 condo apartments listed for sale in the Mimico MLS community.

What did they do?

23% of the listings set an offer date and were holding back on offers until that date.  The remaining 77% were listed with offers being accepted anytime.

How did it work out?

For the 40 condo apartments that had offer dates, 16 failed to sell on their offer date, 15 did sell and 9 have their offer dates in early August.  None of the units that sold were sold with a pre-emptive offer.

For the 129 condo apartments that were accepting offers anytime, 90 are still for sale, 9 are sold conditionally and 22 are sold firm.  We also had 8 that terminated the listing.

What does it mean?

Given we have a decent sample size, we can reasonably assume some causation or correlation between the approach taken and the results.  Here’s what we saw from our analysis.

• The majority of sellers in Mimico are not holding back on offers and are willing to take offers at anytime. Only 17% of the listings sold so far, with another 7% sold conditionally.  For those units that did sell it happened within 11 days.
• The sellers who held back on offers didn’t see any buyers jump in with a pre-emptive offer but about half of the listings who had offer dates that have now passed saw the unit sell on offer day. That of course means the other half failed to sell on their set offer date and continue to list for sale.
• If you’re looking to sell a typical condo unit in the area, listing at market value and negotiating to get close to that price is the most common approach. If you do set an offer date, don’t expect to get a pre-emptive offer and you’ve got even odds that you won’t get an offer or a deal done on your offer date.  Given that result, we would recommend listing at a fair price and having your agent work hard to get buyers in who want to pay that price.
• If you’re looking to buy a typical condo unit in the area, expect that most listings will be available for offers immediately and the list price you see (or a bit below it) is what they would take for the unit.

Just like with detached homes in High Park, every condo unit and building has its own specific situation so if you’re considering selling, make sure your agent considers the attributes and market for your home.

Deciphering what’s going on in a specific market and what you can expect as a seller or buyer is quite challenging.  If you are looking to buy or sell, you need to work with agents who understand what’s happening in your market and what approach will get you the best possible results.  If that sounds appealing, don’t hesitate to get in touch with us!

We have all heard the old adage about the three most important things in real estate.

“Location, location, location.”

While that may make for a pithy statement, in truth there are three fundamental variables in real estate and each is tied to the others.  If you change one of these fundamental variables, it will affect the other two variables.

How do each of these variables impacts the others?

• Love a particular neighbourhood? The options for the type of home that you can buy there will be dependent upon your budget and the price sellers are getting in that area as well as the features of the home.
• Looking for a certain type (detached, semi-detached, townhouse or condo apartment) of home with certain features? The location we look in will be dictated by your budget for the desired type of home with the features you want.
• Have a maximum budget due to a pre-approval amount from a lender or your comfort level for monthly costs? The type of home and location will both be impacted by this financial consideration.

All buyers are subject to these three fundamental variables.  Even those buyers who have no financial constraints are really just able to prioritize location and features over price.

Let’s look at properties for sale right now to see how prioritizing each of these variables impacts the others.

Priority #1 – Living in a particular neighbourhood

For a buyer who has prioritized a certain location as being crucial to their purchase, they will need to adjust their preferred budget or the ideal features of the home.

Here’s three options if you’ve decided you must live in the catchment area for the Frasier Institute’s number one ranked public school, Whitney Junior Public School.

118 Rosedale Heights Drive, Toronto

This is a condo apartment with three bedrooms and two washrooms, for sale at $2,050,000.

Photos courtesy of ROYAL LEPAGE REAL ESTATE SERVICES HEAPS ESTRIN TEAM, BROKERAGE

286 St Clair Ave East, Toronto

This is a detached home with three bedrooms (plus two in the basement) and five washrooms, for sale for $3.18M.

Photos courtesy of RE/MAX PARTNERS REALTY INC., BROKERAGE

167 Douglas Drive, Toronto

This is a detached home with five bedrooms and five washrooms, for sale for $6M.

Photos courtesy of SOTHEBY`S INTERNATIONAL REALTY CANADA, BROKERAGE

If you’ve decided you must live in a particular neighbourhood or area, then the location is one variable you will not compromise on in your hunt for the right home.  This means that you have to be willing to be flexible on the features or attributes or even type of home as well as the price.  In this example, a family looking to make sure they were within the catchment area for the highest ranked public school in Toronto could buy a condo or a house, spending from $2M to $6M on their purchase.

Priority #2 – Living in a certain type of home

For a buyer who has prioritized a specific set of features or attributes for the home as being crucial to their purchase, they will need to adjust their preferred budget or the location in which they buy.

Here’s three options if you’ve got a big family who needs space (minimum 4 bedrooms and 4 washrooms, with a finished basement), and a pool to enjoy during the summer.

260 Glen Hill, Whitby

This is a detached home in the Blue Grass Meadows area of Whitby, for sale for $999,000.  It has the minimum required 4 bedrooms and 4 washrooms with a finished basement and a pool.

Photos courtesy of RIGHT AT HOME REALTY INC., BROKERAGE

39 Whitney Ave, Toronto

This is a detached home in Rosedale-Moore Park area of Toronto, for sale for $9.1M.  It has four bedrooms (plus one in the basement), seven washrooms, a finished basement and a pool.

Photos courtesy of CHESTNUT PARK REAL ESTATE LIMITED, BROKERAGE

2315 Mohawk Trail, Milton

This is a detached home in the Campbellville area of Milton, for sale for $2.7M.  It has four bedrooms (plus three in the basement), five washrooms, a finished basement and a pool.

Photos courtesy of RE/MAX HALLMARK CHAY REALTY, BROKERAGE

If your priority is specific features or attributes of a home, you can pay a wide range of prices depending on the location and variation within the features.  In this example of a family who wanted lots of space and a pool, you could spend between $1M to $9.1M and end up in Whitby, Toronto, or Milton.  While such a wide budget range is very unlikely, it showcases that if your priority is anything other than price, you can get what you want, wherever you want.

Priority #3 – Buying within a certain budget

For a buyer who has set (or had set for them) a maximum budget for their purchase, they will need to adjust the location in which they buy or the ideal features of the home.

Here’s three options if you’ve got a budget of $1 million and you’re willing to be flexible on location or features.

33 Ashmore Drive, Toronto

This is a detached home in the Stonegate-Queensway area of west Toronto, for sale for $995,000.

Photos courtesy of SUTTON GROUP OLD MILL REALTY INC., BROKERAGE

853 Fairbank Avenue, Georgina

This is a detached home in the town of Georgina, for sale for $999,000.

Photos courtesy of EXP REALTY, BROKERAGE

3476 Sommerville Drive, Clarington

This is a detached home in the town of Clarington, for sale for $999,900.

Photos courtesy of THE NOOK REALTY INC., BROKERAGE

As you can tell, if your priority is a specific budget and you were open as to location and features and attributes of the home, you can get very different homes for the same budget.  Do you decide that after budget, you prioritize living in Toronto?  If so, then you’re looking at a smaller home that needs updates.  If you’d rather spend your $1M on a home that is also recently renovated, you can buy an updated home up in Georgina.  Finally, if you think that for $1M, you’d like to have some more space, then you can buy a country estate in Clarington.

We hope you’ve enjoyed seeing how prioritizing one of the three fundamental variables in real estate can have a massive impact on the home you buy.  Whether it is location, features or price, if you focus on one, it absolutely impacts the others.  For most buyers, it is a juggling act between the three variables where you are trying to get the best possible combination of all three.  In order for that to happen you need to work with real estate agents who understand when compromising is necessary but who won’t settle for unacceptable trade-offs.  Get in touch with us and we’ll make sure you get the best possible mix!