A Quick Overview
Home sellers often want to know how their home's value is determined. Who sets the price? What factors are considered? Here's a look at how agents determine home valuations.
The first step in determining a home's value is to look at comparable sales in the area. This involves finding recently sold homes that are similar in size, location, and amenities to the home being valued. They will also look at home type (i.e. condo/townhouse/half duplex/single family detached), lot size, number of bedrooms/bathrooms, and other unique features. In a city an agent will also usually restrict their focus to comparables in one or more neighbourhoods. Agents will also look at homes that are currently on the market to see what they are priced at in addition to looking at recently sold homes.
Once comparable sales have been found, the next step is to adjust the prices of these homes to account for any differences. For example, if a home being evaluated has two bedrooms and two bathrooms, but the comparable sales only have two bedrooms and one bathroom, the prices of the comparable homes will be adjusted upward to reflect the additional space.
Next, the agent will consider the current market conditions. If there is high demand for homes in the area, then the property is likely to be worth more than if there is little demand. The agent will also look at factors such as interest rates and the overall economy to get an idea of where the market is headed.
In a changing market where prices are quickly moving up or down I prefer to restrict the time frame for comparable houses that I’m looking at. In a fairly steady market I typically prefer to increase the time frame to as much as 6 months in order to get more comparable sales and a broader data set. However, when the market is changing I will often restrict this time frame to 90 days or less, just to ensure that the information is more current. Keep in mind though that historical data is never going to be a perfect reflection of current trends. In some cases it can be useful to adjust a comparable price by adding or subtracting the most recent monthly percentage change, but this kind of estimate should be taken with a grain of salt.
After adjusting for differences in comparables and factoring in market conditions, the next step is to come up with a final estimate of value. This number will be based on the prices of the comparable homes as well as any other factors that the agent deems relevant. I personally prefer to present the average price to sellers and discuss a min/max price range for comparable properties to give my clients a fulsome view of what’s likely and what’s possible.
The final step is to present the estimate of value to the home seller. The agent will explain how the value was determined and will provide a range of prices that the home is likely to sell for.
Home sellers should keep in mind that an estimate of value is just that – an estimate. There are many factors that can affect the final sale price of a home, so it's important to work with an experienced agent who can help you navigate the process.
I am a Victoria based local realtor with eXp Realty. My commitment to honesty, integrity, loyalty and hard work have been important pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!
I service Vancouver Island, but my focus is on: Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.