We’ll show you how to do your research and think like a buyer, but first let’s quickly cover a few key points that can get in the way of being able to do that.
Factors that DO NOT affect the value of your home
As discussed, (and I hope you agree), value is determined solely by what a buyer is willing (and financially able) to pay in today’s market.
Therefore, none of the following have any effect on the market value of your home (i.e., how much serious buyers will be willing to pay):
- Price you paid
- Amount you need
- How much you want
- Neighbour opinions
- Friends advice
- What real estate agents say
- The cost to rebuild
- The cost of improvements
Consider this…
…If you were looking to buy a house, would you care what the house seller paid for it or how much they spent repairing the roof, or on their kitchen refurbishment etc.?
Bottom line(s):
- Primarily, all buyers really care about is what house sellers are asking for similar homes currently for sale.
- Buyers are also interested in what similar properties have recently sold for (but this is trumped by point 1).
- If purchasing with a mortgage (as is most often the case), the buyer’s lender will want to ensure the appraised value is sufficient to lend the
The relationship between cost & value
Let’s clarify this by defining some common terms you’ll hear thrown around:
COST
Cost is the amount you paid for the house plus any capital improvements you’ve made while owning the home.
PRICE
Price is what you ask (your asking/list price).
List prices are not necessarily the price you’re going to get.
When set correctly a list price acts as bait that attracts buyers to your home.
VALUE
Value is what your home is worth to one person, someone that needs that exact property.
The problem is that person knows they only have to pay market value.
MARKET VALUE
Market value is the amount that appeals to many buyers and will generate a sale within a reasonable time.
Bottom line: There is almost no relationship between cost and market value.
A home is worth what it’s worth regardless of what you paid for it or what money you put into it.
Fundamentally, value is what you get out of a home, not what you put into it.
The value of improvements
Improvements made to a home ‘add value to you’ (by increasing your enjoyment of your home) but may not add value to the buyers in the market.
It’s subjective of course, but to see things clearly, think back…
…At the time you embarked on any home improvement project, were you planning on staying or moving?
Staying we’ll bet?
Now let us ask you this…
…If you’d known then you were moving today, would you still have made those improvements?
If your answer is ‘probably not’, then ask yourself ‘why not’?
Most likely the honest answer will be that you know you’d not get the money back.
If the improvements were removed, what percent of today’s buyers would put them back and pay what you did?
The value of improvements
Improvements made to a home ‘add value to you’ (by increasing your enjoyment of your home) but may not add value to the buyers in the market.
It’s subjective of course, but to see things clearly, think back…
…At the time you embarked on any home improvement project, were you planning on staying or moving?
Staying we’ll bet?
Now let us ask you this…
…If you’d known then you were moving today, would you still have made those improvements?
If your answer is ‘probably not’, then ask yourself ‘why not’?
Most likely the honest answer will be that you know you’d not get the money back.
If the improvements were removed, what percent of today’s buyers would put them back and pay what you did?
The effect of condition on value
Primarily the condition of your home will affect its saleability. But it can (in certain cases) also affect what buyers are willing to pay.
The good news is that condition is one of the few things you have total control over.
The first step is to change your role from being a ‘homeowner’, to a ‘home seller’. Which means converting your home from living condition, to showing condition.
Cosmetic condition effects saleability
Here’s a way to demonstrate the effect of proper preparation.
Consider two $5 dollar bills, one is new, fresh and crisp, the other is crumpled, dirty and a bit worn around the edges.
If you had a choice between these two bills, which one would you take?
You’d probably take the new one. But would you pay $6 for it?
…Probably not we’d bet.
A properly prepared home may not be worth more than market value, but it will be preferred over the competition and probably sell faster.
Major repairs affect what buyers are willing to pay
Repairs protect your investment and keep you from losing money, but don’t necessarily increase the value of your investment.
If the improvements were removed, what percent of today’s buyers would put them back and pay what you did?
Factors that DO affect the value of your home
Homeowners often place major value on minor things – proclaiming their home to be better (and so much more valuable) due to superior, condition, amenities or decoration.
These things make a difference but not as much as you might think.
The major factors that determine value (and their relative impact) are as follows:
- Location
- Type & Style (e.g., Detached/Attached/Apartment & Bungalow/2 Storey/etc.)
- Size
- Condition
- Amenities (e.g., garage, parking, etc.)
![](https://bodeblog.wpenginepowered.com/wp-content/uploads/2021/02/Major-Factors-that-Determine-your-Homes-Value.png)
Bottom line(s):
- Location, Property Type, and Size account for the majority of ‘value’ for any home.
- Condition and Amenities contribute far less to ‘value’ but can make a big impact on ‘saleability’ (i.e., how much more appealing it is to buyers compared to similar homes).
All of these factors (except condition) are accounted for in our Comparables algorithm in order to show you the most similar homes to yours.
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