Depending on which side of the sales transaction you’re on, the market and appraisal values of a home can either work in your favor or work against you. Many sellers understandably want the highest dollar value they can get when listing a property for sale. Often, they let emotions rule their judgment and price a house above comparable dwellings listed for sale in the same neighborhood. By the same token, anxious buyers might fall so deeply in love with that home and neighborhood that they’re willing to pay the full asking price for the home— or perhaps many dollars above that listed value. So when either buying or selling a home it’s essential to know how both values differ.
A good definition of market value is whatever price a buyer is willing to pay for a home. Buyers can get caught up in bidding wars in hot Canadian real estate markets (think Toronto or Vancouver) and lose all sight of what they should pay as opposed to what they’re heart dictates. Overpaying for a property is a personal choice but one issue that could derail the home buying plans involves financing. A bank will usually base their calculations on the appraisal value of the house. Thus, mortgage shoppers may have to reach in their own pocket for down payment amounts that exceed their expectations.
On the seller side, sentimental value often distorts an owner’s perspective and listing the property for some pie-in-the-sky number could have the home sitting on the market for months or years. It’s understandable. People put their heart and soul into a property and the sorrow of parting with it can only be relieved by corralling more money than the property is reasonably worth. And that strategy might work in a blazing market, but for the average neighborhood, it’s wiser to list a home at or near what comparable dwellings have sold for in the past few months.
Once again, the results of a home appraisal might vary dependent on whose agenda it serves. Sellers naturally want the home to appraise for as much as possible so that their listing value might somehow be justified by that estimate. Homeowners looking for a tax break might have a property reassessed so that property taxes, pegged to appraisal value, might not put such a big dent in their budgets.
One fact remains steadfast. Banks will certainly make their own appraisal of a listed property and if a buyer’s purchase price doesn’t jive with the lender’s figures, a deal might fall through if the sale hinges on borrowing 80 to 95 percent of that appraisal value. With that in mind, logic should replace emotion on the part of both buyers and sellers when the time comes to arrive at a fair market value.
Buy low and sell high. That’s a familiar mantra for anyone engaged in purchasing or parting with a valuable asset. And the philosophy works fine involving cash deals in which no intermediary is financing the transaction. However, when banks are involved in home sales, understanding market and appraisal value will help pave the path to a hassle-free experience for both parties.
At RateSupermarket.ca, you can begin the journey toward a home purchase by comparing mortgage rates from many different lenders across Canada.