On social media and the internet, you see many advertisements offering a quick home evaluation.
‘What is your home worth? Find out now!’
In all honesty, we can say that instant home evaluations do not exist. There is much more to a home than four walls and a roof, and a computer is never able to accurately determine the value of your home accurately. These advertisements ask for your personal information, and give a realtor a marketing tool to find potential sellers.
But what does it take to determine the value of your home to sell? What elements go into a CMA, a Comparative Market Analysis?
How to do a home evaluation, a Comparative Market Analysis (CMA)
Many factors determine the value of a home. For instance, we look at sold properties, at expired listings, and homes currently for sale. But we also look at the current market situation. It demands a lot of research to come to a fair market value of a home. The MLS is an incredibly valuable resource in the entire process. It gives us data about every home that sold via the MLS, going back around 25 years. To determine an accurate value of a home, we look at many elements.
Only the most recent sold prices tell the story
What a home sold for 10 or 25 years ago is not important for today’s value. What is important are the homes that most recently sold, and that are comparable to the property that needs to sell today. The term ‘most recently’ means properties that sold in the last 90 to 360 days. We only search further back in time if nothing similar or comparable has sold, and we adjust with a percentage for the time difference. The Calgary Real Estate Board provides us with all the statistics and data needed for every community and for every type of home. With this information, we can adjust for time, if necessary.
What properties are considered comparable for a home value
By comparable properties, we mean homes that are similar in style. So we compare apples to apples, meaning bungalows to bungalows and not bungalows to 2 storey homes, for example. Or, we only compare detached homes with detached homes, not with attached homes.
Our real estate board provides realtors with a wealth of data and statistics
Price adjustments to balance the differences in features
Not one home in Calgary is the same as another, not even the so-called ‘cookie-cutters’ in the newer areas. Most homes have different floor plans, different square footages, different finishings, different locations, etc.
Once we have selected properties that are comparable to the property to sell, we can then adjust a dollar amount based on a number of characteristics of the home. We look into the details of every sold and comparable property and focus only on these differences that have a particular value for the average buyer. Here are a few examples of characteristics and /or features we look for in recently sold homes. From these, we adjust a dollar amount for each item, if necessary:
- Square footage. When adjusting for size, we use a different price point for different types of homes and for different areas in Calgary. For example, apartments and single-family homes have a different price per square meter. The same goes for different areas. For example, a home in Springbank has a different price per square meter than a home in Legacy. Also, the price per square meter of a home in the suburbs differs from that of a home in Calgary’s inner-city.
- Number of bedrooms. Usually, properties with three bedrooms upstairs have a higher value than homes with only two bedrooms up. So, the differences in number of bedrooms require adjustments in value.
- Garage. A property with a two-car garage has a higher value than a home with only a one-car garage or no garage at all. The value of the garage needs consideration for an adjustment in price.
- Basement development is also a valuable feature. Is the basement fully developed or is it undeveloped? Perhaps it is a walk-out basement or a legally suited basement. Also, values for different types of basements are different between a small bungalow and an estate home.
- Flooring is another quality we adjust for. Hardwood has a higher (perceived) value than carpet or laminate or vinyl plank. Also, the size of the homes need consideration. Hardwood in a small bungalow is a different value than hardwood in a large home.
- Windows and the roof are big ticket items. Are the windows old or new? Is the roof asphalt shingles or 50-year rubber tiles? Also, new windows in a 1000 sq ft bungalow or a 3000 sq ft 2-storey home obviously carry a different value.
- Furnace, hot water tank and A/C. Every home has a furnace and hot water tank. Are they old, newer or brand new? Not every home in Calgary has A/C. So a home with A/C usually values slightly higher, if only a few thousand dollars.
- Location is a very important factor in determining a sale price of a home. Busy roads, backing on the green spaces, mountain views, corner lots, homes located very close to a power line are all features with different values.
- Upgrades and renovations. This area is somewhat subjective, but, in essence, we look at new kitchens, upgraded bathrooms, casings, granite, etc.
How do we get to a value for a feature in a home?
3 realtors can perform a home evaluation, and each one can come to a different decision of a suggested sale price
A buyer rarely pays full price for any feature. That new garage may cost around $30,000 but a buyer will not pay the full $30,000. The A/C may cost $8,000 to install. In a home evaluation, we adjust the A/C to be less than the full installation cost. And keep in mind, sometimes a buyer sees no value in certain features.
MLS details are most valuable to set a value of a home to sell
The examples above are but a random selection of the characteristics and features we use to help determine the price value of a property. The MLS details of previous sold homes are an invaluable resource for this. Not only do we look at the provided data of the comparable homes, but we also look at the photos of the property and read the text provided with every MLS listing.
How we adjust the price differences to determine the value of a home
Ultimately, the buyer determines the real market value of a home, while the asking price can be anything. So, therefore, we only use properties that are comparable and already sold. Then we make adjustments to these sold prices, but only adjust for the differences. For example,
In essence, we try to make the home that needs to sell similar to the property that already sold. Therefore, we adjust for these different features with a certain value. For example, the home with finished basement sold for $400,000. The home that needs to sell has an unfinished basement. The value of a finished basement is approximately $25,000. The home with unfinished basement ‘should’ sell for $375,000.
The home without garage sold for $400,000. The value of a double garage is approximately $20,000. This means that the home with garage ‘should’ sell for around $420,000.
It is all a matter of adding and deducting for every feature and characteristic we think has value to a buyer.
Home evaluations need 3 to 4 comparable homes
Because we cannot base the entire market evaluation on just one sold home, we find at least 3 to 4 homes for this comparison. It is obvious that comparing 3 to 4 homes gives a safer outcome and a better range of potential sale prices for the home to be sold.
What can expired listings tell you about your home value?
For every home evaluation, we start with sold prices because they define what a buyer is willing to pay for a home. However, we also look at expired listings. When a home doesn’t sell and the contract between listing realtor and seller ends, the listing expires. Listings contracts are a minimum of 60 days. The question is why did the home not sell? Maybe it was in an undesirable location, or it was badly maintained. Maybe it was occupied by tenants who were uncooperative and sabotaged the sale. It can be for many reasons. Yet, expired listings can give valuable information to help price a property to sell.
Competition to help set a sale price for a home
Besides similar properties that have already sold in a community, we also look at what is currently for sale. Homes currently for sale are considered the competition. The main question is, “What else can a home buyer purchase today within a similar budget? “
Most buyers require a mortgage and are bound by a budget, which gives a handle to know which properties can be considered competition. This part of a home evaluation, though, needs some experience in interpretation.
For example, you want to sell a 1200 sq foot bungalow for around $500,000. Competing homes are those for sale in the same price range. Buyers might be able to borrow $550,000. In this case, a bungalow currently listed at $600,000 is still considered a competitor, but not such a big competitor with the bungalow of $500,000 to $550,000. Also, a townhouse is less of a competitor with a bungalow, even if they are both priced at $500,000. Buyers looking for an apartment usually don’t look at bungalows, etc. The audiences for these two home styles are usually different.
Home buyers often look in several communities
Buyers rarely only look in one Calgary community. In fact, our experience shows that most buyers look in at least a handful of communities. Some buyers are even willing to look in 10, 20 or more communities. This fact needs some consideration, as well, in a home evaluation. It means that competition is clearly not always restricted to one community.
What target group buys your home?
Another aspect in a home evaluation is knowing what the target group is for that particular home. For which group of buyers is this home suitable? Simply put, not every property is for everyone. Some first-time home buyers like to renovate while some don’t. Downsizers are often more specific and pickier about what they are looking for in a home. Investors look at properties differently than a growing family does. On top of that, every buyer, just like every seller, has a different motivation to buy or sell. It is important to have some experience to determine what features and characteristics appeal to which audience of home buyers.
How one year can affect your home value; economic factors
Calgary is a fairly volatile market, and a year ago the market was possibly different from today. To evaluate the sale price of a home, we sometimes need to adjust for this fact, as well. The market can be a buyer’s market, a seller’s market or a balanced market. And every market has an impact on today’s value of a home. Therefore, if needed, we adjust the potential sale price to match the present market. Again, the Calgary Real Estate Board offers us a phenomenal amount of data and statistics that we can, and do, use in our home evaluations.
Also, economic outlook factors must be considered in a home evaluation. What is the current interest rate? What is the economic outlook for Calgary, for Alberta or even Canada? Every home, in every segment, and large or small, is impacted by economic factors to some extent.
Every home has a feel which is difficult to value
To determine the sale price of a home we use sales data, expired listings and current competition.
Another example that can affect a sale price is flooring. Sometimes we see different flooring of different colors in every room and every bedroom of a home. We call it quilted flooring. The ‘end of the roll’ was probably a cheap solution at the time, but it usually does come back in the sale price.
The number of bedrooms can affect the sale price of a home, as well. A home with 3 bedrooms above grade is, in general, easier to sell than a home with only one bedroom above grade. Simply, the target group for the latter is smaller.
And as a last example, sometimes tenants can affect the sale price, unfortunately. Occasionally, tenants don’t always cooperate with showings. Or tenants haven’t put any effort into decoration and staging of the home. Several years ago, we had the experience of tenants smoking pot in the home, and also not flushing the toilet. Therefore, the home was longer on the market, and it needed a lower price in order to finally sell.
When doing a home evaluation, again, these are just a few examples that also need consideration in setting a value to sell a home.
Only humans, not computers, are able to value your home
A good home evaluation or CMA definitely requires thorough research and a lot of experience. Decidedly, 3 realtors can perform a home evaluation, and each one can come to a different decision of a suggested sale price. Different realtors can have different opinions on the pricing of different features and use different sold homes as a basis of comparison.
Instant home evaluations do not exist
Circling back to the start of this document, it is quite obvious that instant home evaluations are not a very secure way to find the true value of your home. Computers use certain data but can never interpret all the other factors for which human experience is needed. There is only one reason why these instant home evaluations are offered, and this is to generate leads. Every time a seller (or buyer) leaves an address and contact information, the realtor has a reason to contact you, and potentially generate business.
We are Tanja van de Kamp and Ariette van Pelt, working as a team, both buying and selling homes in Calgary. Calgary has been our home since 2004, and real estate our full-time profession since 2009. Tanja was a lawyer in The Netherlands for 12 years, and learned how to negotiate strategically, and to work in the best interests of her clients. Thanks to our honest and transparent approach to real estate and towards our clients, we have built our business. It’s been a privilege to work with our clients, and, over the years, many clients reciprocated their appreciation of us, as shown through their many referrals.