Property Value
When we work with buyers, we spend a lot of time discussing the value of a property. In fact, I think we’re pretty good at figuring out what a home is worth on paper before a buyer even considers their offer. When it comes to determining property value, we complete a Competitive Market Analysis (CMA), meaning we review recent sales in the area to help determine the property’s worth. We also consider compounding appreciation, market conditions and any distinguishing features of the home that may decrease or increase value. Now, this doesn’t mean we can always predict what a property will actually sell on any given day. There are many factors that influence property value and the final sale price of any home. These factors include the number of offers, time of year, days on market, bully offers, conditions in the offer, dual agency and assignment sales. All of which, make it challenging to answering the question, “what do you think this property will sell for”?
The Nine Big Influencers of Property Value
Here are some useful criteria to help you better understand how the value of a home is determined. Of course, some of these criteria will be more meaningful to you than others. Take a look…
1. Location
This is probably super obvious, but it is the truth. Where is your new potential home located and is it situated on a highly desirable street? When we work with buyers on pricing, we always compare the value of the home against the Toronto average, neighbourhood average and street average. We also consider what will be happening to that area over the next 5-10 years in relation to densification and gentrification. This includes public transit, new construction, commercial enterprise and school planning. If the area is about to see an uptake in the next few years, you may be more comfortable offering more on a property knowing the neighbourhood with catch up. In general, locations with healthy transit, good public schools and access to amenities warrant higher prices. Bonuses include wider streets, parks, community programs, lower rise buildings and the all important neighbourhood coffee shop!
2. School District
The local school district is a big factor with significant influence on property value. On average, homes in the best school districts sell for higher prices than similar homes in less-popular school districts. It’s hard to deny that there is strong demand for great public schools. And, demand drives prices higher for residential homes that have limited inventory. In fact, you can see a huge delta in home values just based on your postal code. This determines the school your children (or future children) may or may not be able to attend. It’s often said, the financial spread between a good school district and a poor school district is the valuation of a private school education. So, when we work with young families looking for homes, we often consider the school district in their planning, budget and pricing.
3. Lot Size
If the lot size is larger than the neighbours’, it might be worth more, but it might not. Sometimes you need to focus on the perceived utility of the lot versus the actual size itself. For example, does your lot have privacy on a quieter street? Is the majority of the lot’s green space at the front or back of the property? Most people want backyards versus large front yards. Is there potential to add value to your property by building an extension and is there space and precedent to do so? And, in most cases (not all), buyers are looking for wider lots versus deeper lots (especially in the city). So yes, the size of a total lot can influence real estate prices. It’s always good to compare your home with recent neighbouring sales for frontage, depth and total square area.
4. Car Garage
Garages can add both utility and lasting long-term value to a property. The question for many buyers is, exactly how much value do they add? A car garage can house your vehicles and time preserve the value of your vehicle too. They’re also great to store bikes, golf clubs, camping equipment and more. So when we take a step back to determine the value of a property, we always want to account for the garage. Does the garage house 1 or 2 vehicles? What condition is the garage? Is it attached or detached from the house? How accessible is it? And, since many of these garages were built before you or I were born, can your vehicle actually fit?
5. Parking and Drive Type
If you score a home in Toronto with parking you’re already winning (if you drive of course). However, there are factors to consider when establishing the value of a parking spot:
- Front Yard Parking Pad: This is a licence to park your car on the city’s property. The city owns a portion of land from the curb to the front of the house with an annual licence renewal fee. If you’re not registered with the City of Toronto, it’s technically not a legal parking space. The city doesn’t allow applications for new licences in most neighbourhoods and there are many requirements for accepting applications.
- Mutual Driveway: This is a mutual driveway shared by the owners of two adjacent properties. The intention is to provide car access between the street and parking space behind the residential property. However, the problem with mutual driveways is they are often very narrow.
- Laneway Parking: This means you access your parking space(s) from a city public laneway at the back of your home. Many buyers prefer this parking style as it preserves the curb appeal of the front of your home. However, a negative to laneway parking is the lane being inaccessible if cars are blocking the way or when there is poor weather and the laneway does not get ploughed!
- Street Parking: Without a dedicated parking space, is street parking a realistic option? If so, does the city have permits available for your particular street of interest? Are you willing to haul your groceries a few blocks in the winter if you can’t find a spot immediately in front of your home?
Again, your real estate professional should talk about your parking and lifestyle requirements in depth. This will significantly impact what you’re willing to spend on a property with or without parking.
6. A Finished Basement
A Report from Remodeling Magazine put the average basement remodel at approximately $70K. That’s a chunk of change when determining how much you’re willing to spend on a home with a finished basement versus a non-finished basement. Other considerations include the basement ceiling height, separate entrance access, and the potential to convert to an income producing basement apartment or nanny suite. A finished basement in a residential property can be a big bonus for buyers. It can provide a lot more living space, with room for an entertainment area, a playroom for the kids or home office. According to Zillow US, below-grade living space (basement) is worth about half of the above-grade living space when comparing square footage. This might be a helpful tool when comparing two properties that are very similar; one with a finished basement and one without.
7. Bedroom and Washroom Count
An easy to way to compare property value is to consider the number of bedrooms and washrooms and on what floor. For example, a three-piece washroom in an unfinished basement cannot have the same value a cute two-piece powder on the main (in my humble real estate broker opinion). You also want to consider if these rooms serve a purpose for you and your family. If you have three kids, it makes sense that a four-bedroom home would have more value to you then a retired couple looking to downsize. Additionally, you may want to determine if there is an opportunity to convert unused space to a future bedroom or bathroom in the future. Perhaps you’ll want to open up the attic, finish the basement with a guest bedroom, or remove a closet to add in a powder room. So, it’s important to understand how the number of beds and baths can impact a home’s value, especially when determining if a particular home is the right fit for you and your family.
8. Condition
Whenever we work with buyers to determine the value of a home, we always classify the neighbourhood comparable sales into three categories:
- Fully Renovated: When this purchase, you’re generally paying a premium for a turn-key house. It’s our expectation that the property includes quality features and finishes and the work was well-executed including craftsmanship, permits when required, warranties and inspections.
- Moderately Renovated: We use this classification for homes that are in move-in condition but may be out-of-date such as the kitchen, washrooms, flooring and paint colours. This home will likely be upgraded over time, but doesn’t need to be ripped apart to introduce newer trends and finishes.
- Gut Job: Generally, this is a very dated property in poor condition that needs a demo’d from stud to stud. These are bigger jobs for the more experienced renovator or buyer willing to spend the money on a contractor, architect or interior designer.
Once we have the recent comparable sales categorized into these three buckets, it’s much easier for us to find other similar sold properties and nail down a valuation. It makes much more sense to compare apples-to-apples when helping our buyers determine value.
9. The Wow Factor
Last but not least is the “Wow Factor”- that thing you can never put a dollar amount to! It’s the reason you have to have this house! Consider: is it the covered front porch on the cutest street you’ve seen? Or, maybe it’s the amazing legal basement apartment that will generate $2,000 additional rent? Perhaps your parents live around the corner and they’re willing to help out with your kids? Or, it’s the fact you back onto a ravine and can enjoy the peace and quiet of gorgeous tree-line after a long, busy work week? It’s these things that make a home “must-have” and it’s those things that don’t have a dollar value. Most of all, it’s this reason we often see homes sell far beyond their worth on paper. Someone needed to have the house – and they were willing to pay for it.
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This article is written by Kori Marin, Managing Partner and Broker at Fox Marin Associates. With a passion for Scandinavian design and all-things-Toronto, Kori brings her own brand of charismatic energy, creative integrity, and expertise to her work.
