Definition of Market Value + The Importance of Pricing

THE DEFINITION OF MARKET VALUE

What exactly is market value? How is it determined? Who determines it? Is timing really that important?

The answers to these questions might downright confusing to most people. The answers vary based on who you ask.

A seller with a strong emotional attachment to his/her home might think market value is a lot higher than it really is while a buyer on the other hand will find all sorts of reason why a home really isn’t worth what it’s worth.  It all depends on who you ask.

Market value is defined as the highest price estimated in terms of money that a property will bring if exposed for sale on the open market, allowing for a reasonable length of time to find a purchaser who will buy with the knowledge of the uses to which the property is adopted and for which it is capable of being used.

The value of real estate is directly related to the benefits of the rights of ownership. The value represents the typical, prudent informed buyer’s and seller’s interpretation of the present worth and anticipated future benefits of the real property.

Typically market value is referred to as the price at which a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure.

THREE GOALS OF PRICING

In real estate pricing is super important because timing is everything. A home that is priced 10% over market value will attract 30% of potential buyers who will look at the property.  Priced at 15% over market value and the number of potential buyers drops down to 10%.  On the other hand, a property which is priced 10% below market value will draw 75% of potential buyers to view it. Priced at 15% below market value will entice 90% of all the potential buyers out there to the property. This last strategy is what is used when seeking multiple offers provided market conditions allow for this.  For example in a Sellers market (not enough listings, lots of buyers), the demand increases as there are only so many houses to go around.

Pricing With the Competition: Ultimately in the final analysis, it is buyers who determine what your home is worth. It isn’t the seller, it isn’t what your neighbour thinks, your Realtor might have a good idea of what your home is worth but what a buyer is willing to pay for a home within the time frame during which your home is listed is what your home is worth. Period.

So just how do buyers determine the value? Buyers learn about value by inspecting and comparing various homes that are for sale during the same time period. Buyers use the process of comparison in deciding which homes they want to see. If your home is not priced in accordance with similar homes, you will not realize as many showings as those homes that are competitively priced. When attempting to price your home with the market, don’t rely on hearsay or rumour about recent selling prices. Don’t base your pricing on how much money you need to get into your pocket. A good Realtor if at all possible will be able to help you net out what you want but only if the there’s a buyer out there willing to pay that price.  It doesn’t matter how much money you think you “should” or “want to” get into your pocket. It matters that you are realistic and basing your pricing on facts.

Pricing to Negotiate: Traditionally speaking, in the real estate world, most buyers expect to negotiate. However, in recent years there’s been nothing traditional about the real estate market in Toronto. Everybody likes to think they got a “deal” and in the old days in order to satisfy this need to negotiate  sellers priced their homes to include around 5% wiggle room for negotiation. Nowadays this doesn’t necessarily work. With a strong market which has been the case in most neighbourhoods for the past several years, homes selling at full price if not well above are not uncommon. Don’t rely on your own idea of strategy, listen to a professional. Listen to the advice of your Realtor. A good Realtor will analyze recent sales, days on market, timing, supply and demand, area factors etc. and will apply all of this to take into consideration your property with it’s strengths and weaknesses.

Pricing for the Highest Return:  Pricing competitively is important and maybe even leaving a bit of room for negotiation might be effective depending on the property and the area BUT ultimately the asking price must deliver the highest financial return for the seller in a reasonable period of time with the least amount of inconvenience.  In order to do this pricing a property correctly from the outset is paramount.

 

 

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