As difficult as getting into some markets can be, home ownership is still considered to be one of the best investments a person can make. That’s because, while the Saskatchewan housing market fluctuates (as it does in any other market), over time real estate values typically trend upward.
As a homeowner you’re going to want to keep an eye on the value of your asset, and periodically you’ll want to know “What is my home worth?”
In order to determine the current market value, or how much you could sell your property for, you will need a home evaluation.
Keep reading to learn what a home evaluation really is, how your REALTOR® determines the value of your home, and why you can’t always depend on certain types of evaluations to set your list price.
What is a Home Evaluation?
For most Saskatchewan residents, home ownership is a long term commitment. Throughout your time as a homeowner, there are any number of reasons you will want to know what the value of your property is. Things like:
- You want to use the equity in your home for something else like renovations
- You’re considering moving and wondering if now is a good time
- You’re looking to refinance
- You want to keep tabs on your net worth
A home evaluation is the process of determining the current market value of your property.
We say ‘current market value’ because believe it or not, the real estate market in Saskatchewan is similar to the stock market. There is a supply and demand component to the real estate industry and despite the long term upward trends, the market is constantly moving up and down.
Ultimately the prices or value of properties fluctuate depending on a number of factors including what people are currently willing to pay, inventory levels, and current interest rates among others.
One thing worth mentioning here is that the speed at which the market changes in Saskatchewan is drastically slower than other larger Canadian markets like Toronto, Vancouver or even Calgary.
Typically the smaller the market the less drastic the fluctuations will be. In the larger and faster growing centers in Saskatchewan like Saskatoon, Regina, Warman and Martensville you’ll see a faster moving market with more substantial fluctuations.
Understandably, because real estate is often known as a safe or even guaranteed investment, people automatically think that the value of their property can only go up. Depending on when you purchased your property, the current market value could be more or less than what you paid.
The method through which a REALTOR® determines the current value of your property is called a home evaluation.
How Do You Determine How Much My Home is Worth?
The first thing your REALTOR® will do when they start evaluating your home, is work to understand the important features of your property. Amongst many other factors, they’ll consider things like:
- the neighborhood
- age of the home
- number of bedrooms and bathrooms
- square footage
- interior finishes
- updates and upgrades
In some cases, your agent will be able to use previous listings to “view” your home, but other times, they may request a chance to view your property in person before completing their home evaluation.
Once they’ve gathered all of the pertinent information regarding your property, your agent will begin to search for comparable properties that are either currently listed for sale or recently sold.
Comparable properties are how agents ensure they are comparing apples to apples, so to speak. Your agent will compare your property to other properties that are similar. Using an add and subtract system to account for variances between the properties, they will determine what they believe is an appropriate value for your home.
Because of the speed at which the market can change, the most reliable way to determine what your home is worth in today’s market, is to determine what other people have paid for properties similar to yours. The more recent the sale, the more reliable the data.
Why Do Home Evaluations Change?
There are a number of reasons why home evaluations can change. The biggest of which is the ever changing real estate market.
The type of evaluation is another reason why you may find a discrepancy between different evaluations. So for example, your tax assessment likely won’t match the evaluation your REALTOR® gives you.
The condition of a home can also affect an evaluation. If, for example, you’ve done a number of renovations or updates to your home since your last analysis, you will likely see your valuation change as well.
Also, you may find that your home evaluation changes from REALTOR® to REALTOR®. Evaluating a home is not an exact science because to some extent determining the value lies in the perceived value of each feature to the agents, buyers and sellers.
Because of this, we actually recommended that you get more than one evaluation before listing your home.
Why Do I Need a Home Evaluation?
If selling your property is the reason you’re wondering what your home is worth, a home evaluation is possibly the most important component.
Buyers today are savvy. They have access to the internet, specifically REALTOR.ca, and they spend a lot of time following the market. They are tracking what similar homes in similar areas are listing and selling for.
Not only do they have access to plenty of information online, they also have a real estate agent who can provide them with access to even more data. The job of a buyer’s agent is to look out for their buyers which means those agents are also determining whether a property is well valued before presenting it to their buyer clients.
In order for a seller to have a fighting chance at selling their home, the list price has to be competitive. If you list your home without having a home evaluation, there is a good chance you are going to price your home out of the market.
Whether you end up overpriced or underpriced (believe it or not, you can easily end up either way), you substantially reduce your chances of selling your home.
In a buyer’s mind, when the price doesn’t add up, it gives the instant impression that something is up with the property and they become skeptical.
Buyers need to see the value in your home (aka the price needs to make sense) before they are willing to book a showing and you need those showings if you want to have any hope of an offer.
Overpriced homes tend to sit on the market for extended periods of time, require numerous price reductions prior to receiving interest, and notoriously sell for less money at the end of the day.
Whether it’s deserved or not, homes that sit on the market for extended periods of time, start to be seen as having something wrong with them. REALTOR.ca displays how long a property has been listed for sale and as that number gets higher, buyers question why the home is not selling even though other similar homes are.
Inevitably, when offers do come in, the price has usually been dropped and the opening offers are quite often lower than expected.
In addition, there is real value in the initial momentum that a new listing creates when hitting the market. Buyers and their agents are literally watching and waiting for new listings on a daily basis.
If the home is priced too high, or even too low, in the opinion of these same buyers and agents, it gets overlooked and bypassed. Once that happens it is really hard to gain that momentum back.
A proper home evaluation is how you ensure that you’re giving your home the best shot at selling, and spending less time on the market.
Are Home Evaluations and List Price the Same?
A home evaluation is intended to give you a window in which your home is valued. The list price is the price tag you put on your property when you decide to sell. One is used to determine the other, but they are not necessarily the same.
There are many circumstances in which people simply cannot, or are not willing to, list their home for market value. Oftentimes people will use their home evaluation to determine whether or not it is the right time for them to sell.
What is the difference between a Home Evaluation and a Home Appraisal?
Essentially a home evaluation that is done by your REALTOR®, and a home appraisal done by your bank are the same thing. They are both taking various factors into consideration to assign a value to your home.
Where they differ is in the specific type of value being determined. So, while a REALTOR® is estimating the market value of your home, that is not the only type of value an appraisal is used for.
A bank or mortgage broker may require an appraisal to determine the lending value of the property. In a different situation an insurance appraiser may be determining the insurable value of the property. Or, you could also have an appraisal being done to estimate the assessed value which would be used for property tax purposes.
Different factors are going to come into play depending on the type of value being appraised.
If one person is required to include or exclude certain features of a property based on the type of appraisal being done, the resulting value can be substantially different from one evaluation to the next.
Why do different appraisal values matter to me?
There are certain situations where appraisal values can be substantially different. For example, this is something that we see come up more with agricultural or rural properties.
If, for example, you live on an acreage that has a garage and a detached shop, your REALTOR® and bank appraiser may assign very different values to your property.
On one hand, your real estate agent is going to factor the value of the shop into their evaluation because the shop is a value-added feature to the property. It is potentially worth a substantial amount to any buyers who are interested in your home.
On the other hand, the lending appraiser may be required not to include outbuildings in their appraisal. In this case they would not attach any value to the shop in their evaluation.
Now let’s say that shop is worth $50,000. Even if the REALTOR® and the lending appraiser value everything else exactly the same, you’re still looking at a $50,000 discrepancy.
The same thing can happen when the housing market goes crazy like we experienced in the spring of 2022. When people start paying whatever it takes to get a house, rather than paying what the value of the property actually is, we start to see the same gap in appraisals.
In that case the gap exists because, while there is likely someone willing to pay a very high price for the property, the lender will only be willing to lend on what they see as the value in the property.
When it comes to selling your home, being aware of potential discrepancies is important because it can offer insight into the challenges you may experience and the strength of any offers you receive.
If there is a gap between what the lender is willing to lend and what the buyer has agreed to pay, the buyer has to be able to make up the difference. Generally speaking, the lower the down payment the less likely a buyer will be able to make up the difference and the more likely the deal is to collapse.
While this is certainly not always the case, it’s helpful to be aware of, and understand, the possibilities ahead of time.
Why Home Evaluations Can Be Unreliable
There’s a good chance after reading all of this that you’re wondering ‘if real estate agents can do these evaluations, then why do I see so many price drops and sale prices below asking’.
And that’s a great question. If you’ve read any of our other blogs, you know that you can count on us to give it to you straight. So here’s the truth about home evaluations:
Home evaluations are not an exact science.
Even if your agent perfectly values every aspect of your property, there is no way to perfectly value each aspect of your property to a potential buyer.
Only an actual buyer can put a definitive price tag on each characteristic of a specific home. When it comes to real estate, the beauty (aka the value) is in the eye of the beholder. Every. Single. Time.
For example, one buyer may put more value on the ability for their kids to walk to school than they do on modern interior updates.
Another buyer may put more value in a fully renovated home than they put on having a garage. Someone else may be willing to pay more for a completely rundown property, because it has a view unlike any other.
The level of desperation is another factor that can have a substantial impact. A buyer who needs a house yesterday is often willing to pay more than the property may be worth on paper. Likewise, if you’re desperate for your house to sell, you may be willing to drop below what the market suggests your home is worth.
The point here is that the only parties who can assign definitive value to each property are the buyer and seller. When the buyer’s value matches the seller’s value, the result is a sale. And that sale price isn’t always perfectly aligned with an otherwise perfectly accurate home evaluation.
If home evaluations could perfectly determine the exact value of a property, there would be no need for negotiations or price adjustments. You would simply stick a for sale sign up and someone would come in and pay that price.
As you can see, home evaluations are a critical component of the selling process. They are the best way to ensure you pick the best list price for your home, and increase your chances of getting it sold.
If you’d like to know what your Saskatoon home is worth, click below for a Free (no obligation!) Home Evaluation.
