Real estate property value estimation is necessary in a number of situations, from pre-sale arrangements to investment plans development. Value estimation is also an important part of your financial planning analysis by competent authorities such as banks and insurance companies when submitting a project for funding, and its accuracy and performance all depends on the qualifications of the specialist conducting it.
Unlike other stages of a real estate transaction, that may be specific to either buyers or sellers, property value estimation is an essential step for both parties. It helps buyers to ensure that the price at which they purchase the property is true to the real estate market in the region and they don’t overpay, whereas sellers ensure that they sell their property at the best price possible. When estimating a property, it’s important to understand that its value is not fixed in time, while composed of many variables it continuously evolves and changes. By conducting an estimation, one can only take a snapshot of the market value at the moment.
Thus, the market value of a real estate property is an objective price determined as accurately as possible at the moment of transaction, based on the set of basic variables and features that define it, assuming that a real or hypothetical transaction is taking place under normal market conditions. (Excluding cases such as lowering the price because of the urgency of the sale because of a death in the family or a divorce).
Here are the things to consider when estimating the market value of a property:
There are three methods of real estate property value estimation that are generally recognized in Quebec, of which only the first two can be used by individuals.
This method is appreciated for its relative simplicity and the speed of conducting it, this method is used in the majority of real estate transactions between individual buyers and sellers because it directly reveals the market value of a property. Firstly, it draws statistics on similar properties’ sales in the same geographical area over a fairly long period of time (up to 6 and sometimes even 12 months). Then the search results are sorted and properties sharing features similar to those of the property whose value is being estimated are selected. The more properties are analysed, the more accurate the estimate is. A pool of 3 to 12 properties is usually enough for this method of estimation. Since each property may have its own unique features, the last step is to evaluate each of those features and exclude them from the cost of the compared properties. As soon as the value of each compared property is determined, the average value of the results obtained is the market value of the property being evaluated. This method is typically used to determine the market value of the following types of properties:
When sales statistics from the first method is not informative enough to draw reliable conclusions on the market value of certain types of property (such as income property), the income method is used alone or in conjunction with the method comparative analysis. It is more complex and requires the assessment of the net income the property (commercial or industrial) generates to determine its market value. This method is reserved for professionals in the financial field as it assumes the knowledge of real estate financing principles to be able to use financial mathematics required to conduct such estimations. This method is used to estimate the value of the following types properties:
When there are no sales statistics available, which may be the case for new constructions, when a building represents heritage cultural, or simply has no comparable in the region, it is possible to conduct an estimation using the cost method. This method takes into account the value of the land on which the object is built, the cost of maintaining and repairing the building, and so on. The value resulting from depreciation must be adjusted, after which the final market value is derived. This method is suitable for objects such as:
As you can see, the market value estimation of real estate property is quite a complex process and must take into account a lot of data and variables that change over time. To make sure the estimation is conducted accurately and professionally it is always best to get support of one or even multiple specialists in the field of real estate and finance.
Do you think you might need help?
I perform a complete comparative analysis of the market value of your property based on the information presented below. Thanks to our powerful search engine, you will have privileged access to the history of bought and sold properties comparable to yours in the region. This information will help you to determine a real value of your home and estimate the final selling price.
