Understanding property values crucial for sellers

by Neil Sharma03 Nov 2017
Before signing off on one of the most important financial decisions of your lifetime and purchasing a home, performing your due diligence is paramount.

As occurred during Toronto’s single-family detached bidding frenzy months ago, many buyers overpaid for their houses when the prices cooled down. Worse still, others couldn’t secure financing and forfeited their deposits.
But how important are home appraisals in the equation? According to Keith Lancastle, CEO of Appraisal Institute of Canada, appraising a home before finalizing a deal should be common sense.

“We encourage people to do their due diligence before a deal is finalized so they’re paying a good price, whether a buyer or a seller,” said Lancastle. “The number of people who do that pre-sell is small, but we think it’s good due diligence. When we’re still talking about houses in the million dollar range, having all information on hand before you sign the agreement, or finalize it, is just good business sense.”

While real estate sales agents offer a similar service in determining a home’s valuation, it isn’t as precise as a traditional appraisal.

“Realtors do market valuations and very much serve a purpose for listing a home, and it’s a very good tool for determining a listing price for a home,” he said. “A full appraisal is a more robust process and does have the benefit of being by an unbiased third party. We don’t have skin in the game.”

“An appraisal is an opinion of value, about understanding what’s gone into it,” continued Lancastle. “When an appraisal is done on a residential property, they look not only at what’s happening in the marketplace, but they look at the cost of construction in a more detailed way than you might in a market valuation. Our members have to comply with our standards. I don’t know if the same standardization exists with market valuations.”

It’s also important to know what adds value to a home and – depending on how pricey an addition is – what doesn’t.

“If you put $75,000 pool in the backyard, it doesn’t add $75,000 in value,” said Lancastle. “Swimming pools and things like that are classic examples of how investment dollars do not necessarily translate into value.”

Related stories:
Inspection myths
7 myths about residential appraisals

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