How We conduct a home evaluation
Understand your investments' worth
everything you need to know ABOUT HOW WE COnduct an expert home evaluation
As with any other investment, understanding how your real estate investment is performing is critical for future planning. Whether you’re thinking of making a move, buying an investment property, leveraging equity for home renovation, etc, a proper home evaluation will have shape your future decisions.
Obtaining A Home Evaluation
How does one go about obtaining objective information pertaining to their home value? The answer is clear, but not always easy to obtain. There are many real estate agents who will state they offer free home evaluations. Although this is true and they will, not all agents evaluate properties well. With that said, a reputable real estate agent should be quite capable in this regard. Some Realtors, including ourselves, go out of our way to provide this information to our clients without being asked – we do it as part of our overall client framework. It’s noteworthy to state that real estate agents cannot legally appraise a property, they can only provide an estimate of value.
If you are refinancing your mortgage to leverage equity, your lender will issue a formal appraisal of your property. This should provide you with a really good indication of your true market value. Unlike real estate agents, an appraiser is legally able to provide a market value appraisal. Keep in mind that many appraisers are not real estate agents and certain situational market conditions may be overlooked. For example, an appraiser may not add value for an inground pool during Covid-19, but in fact pools have become very popular and may situationally increase value (historically they don’t add much).
Home Evaluation Methods
Without delving into too much technical detail, there are two primary methods how real estate agents and appraisers evaluate residential properties – the direct comparison approach and the cost approach.
1. Direct Comparison Approach
Whether you know it or not you’re already familiar with the direct comparison approach. This is where we compare the subject property to other, ideally similar, properties. For example, if we are evaluating 123 Main St and know that 5 other similar homes have sold in the area, we can estimate the value of the subject property by making necessary adjustments. We adjust the price of the subject property by looking at features such as lot location, upgrades, construction quality/features, square footage, etc.
2. Cost Comparison Approach
Conversely, the cost approach is a real estate valuation method that estimates the price a buyer should pay for a piece of property is equal the cost to build an equivalent building. In the cost approach, the property’s value is equal to the cost of land, plus total costs of construction, less depreciation. It yields the most accurate market value when a property is new (it’s not very effective with resale homes). Additionally, while the cost approach can offer some idea of a property’s value, it does not adequately capture many of the nuances of residential real estate.
3. Income Approach
There is a third approach to valuating properties – the income approach. However, this is primarily used in commercial real estate settings.
For the purpose of this article, we are going to focus on the direct comparison approach as it’s the most common method for evaluating residential resale properties. It’s also the primary method real estate agents use.
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”
Primary Factors In Evaluating Property
When conducting a home evaluation we focus on a number of factors, including:
Once we examine all the potential factors that can impact value, we analyze the home at a macro and micro level. The end result is an estimate of the current value for the home if it were to be sold today.
Future anticipated value is a bit tougher to quantify, but by understanding current economics and future trends, we are able to provide a future prediction up to 3-5 years. However, the longer the prediction the less reliable the results, given how quickly the market can shift.
Local economic Factors
Local economic factors have a profound impact on the value of real estate. There are three primary market conditions:
1. Sellers Market
2. Buyers Market
3. Balanced Market
Impact of Covid-19
Covid-19 has impacted almost every facet of our daily lives. Since the onset of Covid-19, the real estate market has experienced numerous shifts. The beginning of the year started off extremely active, with markets entering into a Seller’s market. Once Covid-19 restrictions came into effect, the market suddenly came to a halt and we immediately shifted to a Balanced market.
However, as the restrictions started to ease, market activity rebounded very quickly. The surge we experienced early in the year arose once again and continues to this day. Most market segments are in a Seller’s market. The only possible exception to this is the high-rise condo and condo rental market, where there’s an abundance of inventory and sales are a bit more sluggish.
By mid-2021, we are anticipating the markets will regulate and shift back to a more balanced position. Preliminary data suggests the current surge in real estate activity is in part due to a backlog of buyers who were sidelined during the onset of Covid-19. These buyers compounded the typical buyer activity over the late spring and summer months, creating a funnel effect. This trend has continued since the onset of the fall market. However, as this is a novel situation, the data is fluid and these projections could change as new data becomes available.
The Internet and Home Evaluations
Consumers are increasingly more educated in the realm of real estate. Property sales data, once controlled by local real estate boards, is becoming more readily available by consumers. There are a host of websites that will publish sales data. Some of these websites will also provide a value estimate for a particular address . We firmly believe an informed buyer or seller are critical factors for anyone trading in real estate. However, these online systems also have their drawbacks.
In regards to property sales data, these websites sometimes contain outdated information. For instance, we’ve had multiple clients state a sold value for a particular property, only for us to look into it further to find out the data is years old or inaccurate. With that said, most of the time the data is accurate enough and we support our clients leveraging all the information available to them – beyond what we offer. It should be noted that as Realtors, we have access to the most accurate data and buyers/sellers should rely primarily on what we provide.
As for online home evaluations, these systems are far from perfect. They provide an arms-length estimate that is riddled with issues and should not be relied upon. Some buyers will even try to use the sold data and attempt to employ the direct comparison approach themselves. Unfortunately, doing so often incorporates personal bias, and lack of understanding and experience. As a consumer, you are not supposed to be the expert, we are. We conduct home evaluations on a consistent basis, with proper education and training. It’s like someone trying to finish their own basement – some people are in a position to do so, but most shouldn’t if they want it done correctly.
how to leverage home equity
Once you have an up-to-date home evaluation, we’ve outlined some potential considerations to help leverage your equity:
Obtain your home evaluation
If you live in the west GTA (e.g. Milton, Oakville, Mississauga, Georgetown, etc) and need a home evaluation, simply follow the below HomeVALUE link, fill out the form and we’ll provide you with a custom market evaluation report.
Want to know your home? With HomeVALUE you will receive an estimate of the current value of your home and access to weekly sold data within your neighbourhood. An informed seller always has an advantage!