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Calculating Fair Value in today's market
05-22-2014, 10:43 AM,
#1
Calculating Fair Value in today's market
Hi Gang

I thought Skook, Navier and some others might have some perspectives on this. First of all, the situation: after a long period of inflation, many of us here recognise that certain peripheral markets are topping out, to put it mildly, or in slow multi-year decline. And yet certain sellers, or their realtors, are still proposing prices which are >20% over assessment, despite the properties in question not selling for quite a while.

That led me to question how one might calculate a reasonable and fair value in today's market. Where I'm looking, most deals close on average at around 0-4% above assessed value, with some outliers tipping the balance by being up to 10% over assessed value (almost never more than this). Additionally, sold values have decreased by 12% over the last 6-7 years (underlining the "slow melt" I refer to above).

Other than the infinite patience counselled to me by some, how to find a value which will persuade sellers to sell at a reasonable price, their expectations notwithstanding? I've come up with a blended method based on some comments made by other posters, and offer a worked example below:

Seller Wants - $628,000
Assessed Value is : $510,000 of which building is $215 and land is $295K

Valuation 1 - assessed value + 4% = $535,000
Valuation 2 - 50% of difference between ask and assessed = $570K
Valuation 3 - calculate price per square foot of building ($215K/2872)=$73.40 psf, then offer premium of 5% on building = $575K including land valuation.

Then take an average of these three methods and you get to $560,000. I wonder if this is at all useful? To me, this would represent the price I would not be prepared to offer above, given the current and future anticipated longer-term market declines.

Anyone have any views? I know this is a bit wonky, but before I jump in, I really don't want to overpay....


Jimmy
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05-22-2014, 05:57 PM,
#2
RE: Calculating Fair Value in today's market
Valuation 2 isn't valid. Asking price is irrelevant.
Assessed value might be meaningful, less so with unique properties that may be extra-perfect to you and you alone.
Valuation 3: Huh? Rephrase that, please. Why calculate $/ft if all you're doing is adding 5% to appraised value. And the appraised value caveat above applies, I don't want a massive house that will cost a fortune to heat and maintain, I want a wonderfully comfortable, welcoming, easy-care place to live, not a sterile glass-fronted monstrosity. There are many properties that I would value less because they tore down the wonderful home that was there and built a McMansion.
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05-28-2014, 06:07 AM,
#3
RE: Calculating Fair Value in today's market
(05-22-2014, 05:57 PM)Alexcanuck Wrote: I don't want a massive house that will cost a fortune to heat and maintain, I want a wonderfully comfortable, welcoming, easy-care place to live, not a sterile glass-fronted monstrosity. There are many properties that I would value less because they tore down the wonderful home that was there and built a McMansion.
The current crop of homeowners are living in a dream world.
Much like the post war parents that watched their children walk away from a fine suburban home to go live in a VW microbus in a commune down by the river.
Their ego will not let them understand that they are living in an apartment building currently labeled a McMansion.
The one thing guaranteed to happen is change.
The values of the fathers are rarely those of their sons.
The current and upcoming generation will be mobile, frugal, connected from a distance.
One thing you can count on is that whatever has value now, will pass.
Those rural 5 acre mini estates in 10 years will be worth less than raw land.
Drive through any city and really picture the world those consecutive communities were built in.
Generally, a trend or mindset rotates through every 5th generation or 80 years.
Remember drawing those 5 point stars when you were kids?
It always arrives back at the starting place.
What was being built in 1934 and the decade after?
Multi generational housing and large 20's houses being chopped into rental suites.
That is your future. IMO
Keep in mind that the people owning them did not WANT to convert them.
They HAD TO for survival and to pay the heating, taxes, upkeep.
Fair value will be seen in 'return on investment' values rather than assessment.
How many suites will it convert to?
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06-23-2014, 04:29 PM,
#4
RE: Calculating Fair Value in today's market
I fnd this thread very interesting, since I am seriously looking at moving from the lower mainland to the Sunshine Coast. I see some properties for sale at prices that are close to $100,000.00 over their assessed values, which have declined dramatically in the past 3 years.

Is this dreaming on their part? Seems like it to me, but what do I know?
Perhaps real estate agents feel sorry for the clients and list high to make them feel better?
There must be a lot of owners who are not seriously trying to sell, yet they list their homes??
When I see a great house (great by my standards), then I see that the assessment is so low and heading lower, yet the asking price is held high through 250+ days on the market, it serves to make me feel more like a complete noob with no idea about the current market on the Coast. I would have a hard time making an offer much higher than the assessment, given the trend of declining assessment values. I'd love to read more opinions on this valuation topic, since I will be listing my house. Incidentally, I will be using a realtor for the selling of my place and a different one for the buying of another, but I just need to learn more about the market...
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06-23-2014, 05:24 PM,
#5
RE: Calculating Fair Value in today's market
Hey Boomer,

Welcome to VanPeak. I read your intro post and I am happy to learn my VP posts have been of value. Thanks for your best wishes, too.

Regarding your question above about iisting so far above assessement, I think if you can find out when the owner bought the house on the SC then you will likely have your answer.

In my monthly SC stats, I include a single detached home Benchmark price chart and it shows the Benchmark price peaked in July 2010. However, the absolute year of price insantity was 2007 when home (and lot) prices leaped by a minimum of $100,000. So, anyone who bought property on the coast prior to the Benchmark peak are likely doing their best to ignore their home's falling assessment value.

I am sure that many who came and bought were counting on downsizing to help finance their later years; an important issue since conservative investments (GICs, bank accounts) have offered such poor returns since the financial collape of 2009. It's awfully hard accept that you won't get a least what you may have paid for your home and especially if you bought into the dream that real estate always rises in value.
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06-24-2014, 04:41 AM,
#6
RE: Calculating Fair Value in today's market
I am sure that many who came and bought were counting on downsizing to help finance their later years; an important issue since conservative investments (GICs, bank accounts) have offered such poor returns since the financial collape of 2009. It's awfully hard accept that you won't get a least what you may have paid for your home and especially if you bought into the dream that real estate always rises in value.
[/quote]

Angel Amen to this, Skook. One example my wife and I are looking at right now is on Bowen, where the property (built in 2009) is -- no lie -- being offered at 58% above assessment. The owners don't, I think, have to sell: but they are being seriously misled about the value of their home. Another is on at around 45% above assessment, and the same rule applies.

All that being said, a friend retired to the island recently and paid 97% of list price without a murmur, despite that being some 30% above assessment. Right now -- in the islands, at least -- it seems to me folks are praying for that starry-eyed Vancouver or Toronto-based buyer to come along and snap up a retirement home for approx 60% of the value of their family home, and tell themselves they've got a deal.

In that regard, it's interesting to note that listings on Bowen are now very close to their three-year high...

Boomer, welcome to the forum! Skook, thanks for your continued work. I hope you are doing well.

Jimmy
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06-24-2014, 07:24 AM,
#7
RE: Calculating Fair Value in today's market
Thanks for the welcome, folks! Skook, again, thank you for that insight. I do try to pour over the incredible amount of data and info you have posted, but in all honesty, it's pretty overwhelming for a simpleton like me, who just wants to leave the big smoke and land in a different environment..

Here's an example:
Owner bought in 1999 for around $300-ish K, at some point, may have subdivided about half the property, (probably in the high-value time, not sure), but the property is now assessed at around $530K ish and they are asking more than $100K over that assessment. To me, that sounds like someone 'fishing' on the market, but I'm not sure if they've had any offers.
There are others, of course, but maybe they are being misled by their own perception of the value of this home, maybe they are not exactly worried if they sell or not.
If the assessments drop next year again, this pricing seems like a real risk for anyone who actually does want to sell before I come back next year and offer even less. Btw, I have not made any offers yet.
Cheers.
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07-01-2014, 07:19 AM,
#8
RE: Calculating Fair Value in today's market
hey Boomer

Thanks for those updates. From where I'm looking (Southern Gulfs) the market is looking decidely sticky and choppy. What I mean by this is:

- inventory now at (or very close to) all time highs;
- "bunching" of listings in the $400-$600 bracket (23 out of 83 listings), and in the $600-700 bracket (17 out of 83 listings), then, weirdly, another bunching in the $1m-$1.5m range,
- mixed findings against assessments. Some of the higher-priced homes ($1m-$1.5m) are now trending BELOW assessment; meanwhile, in the $600-$800 range, people are still hoping for up to 50% above assessment.

That last fact, speaking frankly, kind of annoys me. I'd like to think they'd never sell if trying that kind of pitch (50% above assessment) but the fact is that if you are selling up in TO or downtown Van, a $850K home which is only really worth $550K probably still looks like a steal.

The venerable Skook believes (and I share his view) that we are probably still around a year away from reality setting in for the Southern Gulfs. I think we need a poor sales year this year and for listings to hit the 90 mark (currently 83) before we see any significant shifts down in price. That said, some places are now down between 35-40% from original asking and are still not selling.


Jimmy
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07-02-2014, 11:01 AM,
#9
RE: Calculating Fair Value in today's market
Thanks, Jimmy. I wonder what the demographic of current buyers are. I mean are they all retirees, or vacation property buyers etc? I'm guessing they are not investment buyers, given that buying now will likely see you lose on the investment for some time to come, based on the activity of the last few years. I could wait a year, but I'd rather not, mainly because I found a few places that would be ideal for us.i'm more interested in the place I'm going to be living in for a long time, than the actual investment, otherwise I'd stay put in my current house. It takes a couple of weeks tops to sell in my area, maybe even only a few days, so this market is doing pretty well, while the SC is really confusing, with so many properties for sale, so few sales and asking prices that seem to ignore that. Someone on the coast is going to sell me their place, so whoever gives enough on their price will be able to move on, while the rest can just stay for sale forever. I'm trying to look ahead 20 years or so, so if the market completely tanks in a year or five, I'm OK with that for now.. People always warn me about moving to the coast, citing things like "when you want to move back, you wont be able to" or, "you'll want to move back when you're sick and old". All of that may be true, but I want my life to include a few good years living there..
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08-03-2015, 09:07 PM, (This post was last modified: 08-03-2015, 09:14 PM by georgie girl.)
#10
RE: Calculating Fair Value in today's market
on subject of assessment value they are more used by vancouver buyers looking here....but they are so inaccurate.....especially on waterfronts where everything is so different,,,,pricing in Roberts Creek is different than Selma Park.....Pender is falling and falling quickly....so sure if your looking at a subdivision or condo project.....But assessments dont consider if you for example are on the highway or off the highway....now for waterfront that can mean the difference between hearing traffic all day or hearing the waves of the ocean...my thoughts anyhow...georgie girl



(05-22-2014, 10:43 AM)JimmyWW Wrote: Hi Gang

I thought Skook, Navier and some others might have some perspectives on this. First of all, the situation: after a long period of inflation, many of us here recognise that certain peripheral markets are topping out, to put it mildly, or in slow multi-year decline. And yet certain sellers, or their realtors, are still proposing prices which are >20% over assessment, despite the properties in question not selling for quite a while.

That led me to question how one might calculate a reasonable and fair value in today's market. Where I'm looking, most deals close on average at around 0-4% above assessed value, with some outliers tipping the balance by being up to 10% over assessed value (almost never more than this). Additionally, sold values have decreased by 12% over the last 6-7 years (underlining the "slow melt" I refer to above).

Other than the infinite patience counselled to me by some, how to find a value which will persuade sellers to sell at a reasonable price, their expectations notwithstanding? I've come up with a blended method based on some comments made by other posters, and offer a worked example below:

Seller Wants - $628,000
Assessed Value is : $510,000 of which building is $215 and land is $295K

Valuation 1 - assessed value + 4% = $535,000
Valuation 2 - 50% of difference between ask and assessed = $570K
Valuation 3 - calculate price per square foot of building ($215K/2872)=$73.40 psf, then offer premium of 5% on building = $575K including land valuation.

Then take an average of these three methods and you get to $560,000. I wonder if this is at all useful? To me, this would represent the price I would not be prepared to offer above, given the current and future anticipated longer-term market declines.

Anyone have any views? I know this is a bit wonky, but before I jump in, I really don't want to overpay....


Jimmy

jimmy....lots and lots of people from lowermainland looking at waterfronts...but above $700,000 pretty dead .....buyers who have made a ton in vancouver view this as a margin call purchase.....but think they can steal stuff.....what surprises me are all the condos at the water mark....between 480 days and 1000 days on the market...must be 2 dozen....with just a handful a month in condo sales for the entire coast it will take 10 years to move that back log....not optimistic at all for sales on sunshine coast....but at least its a little better than last yea





(07-01-2014, 07:19 AM)JimmyWW Wrote: hey Boomer

Thanks for those updates. From where I'm looking (Southern Gulfs) the market is looking decidely sticky and choppy. What I mean by this is:

- inventory now at (or very close to) all time highs;
- "bunching" of listings in the $400-$600 bracket (23 out of 83 listings), and in the $600-700 bracket (17 out of 83 listings), then, weirdly, another bunching in the $1m-$1.5m range,
- mixed findings against assessments. Some of the higher-priced homes ($1m-$1.5m) are now trending BELOW assessment; meanwhile, in the $600-$800 range, people are still hoping for up to 50% above assessment.

That last fact, speaking frankly, kind of annoys me. I'd like to think they'd never sell if trying that kind of pitch (50% above assessment) but the fact is that if you are selling up in TO or downtown Van, a $850K home which is only really worth $550K probably still looks like a steal.

The venerable Skook believes (and I share his view) that we are probably still around a year away from reality setting in for the Southern Gulfs. I think we need a poor sales year this year and for listings to hit the 90 mark (currently 83) before we see any significant shifts down in price. That said, some places are now down between 35-40% from original asking and are still not selling.


Jimmy
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