The Higher the Value, the Harder to Price
Not far from my home there are some very big homes indeed. One of those homes is often cited as the most expensive property in all of British Columbia. This has always given me pause, first of all because this property would never be my first choice if I had all the money in the world and intended to spend a vast sum on my primary residence in Vancouver. But I’m also struck by the precise value attributed to the property. The figure is so jaw-droppingly high that the arbitrary aspect of real estate prices seems maximally underscored. It seems very possible that the eventual sale price of the property, if it were put on market, could differ from the affirmed value by tens of millions of dollars. If you doubt that, let me explain why I think this could be so.
Real estate values do fluctuate of course, and no one is more aware of that than a Vancouverite in 2018. But even in a flat market, or a market with steady, slow, and predictable growth, putting a precise value on a property is never an exact science.
The easiest cases involve (1) a large basket of buyers and (2) a home or property that is very similar to it’s neighbours.
Think of a 5-acre field surrounded by hundreds of other five acre fields. There are always a few of them for sale and they all have the same soil and access to roads and water. If several fields sell for $100K, it will be almost inarguable that the value of each of these fields is $100K.
Whats about a condos? If the unit you own is in the “Oh-6” stack (the unit number ends in a 6 and the units below and above also end in a 6), and the unit below yours sold for $490K and the unit above sold for $510K, your unit, assuming the same finishings and parking arrangement, is almost certainly worth $500K.
Also, at $500K in Vancouver right now, you’ve got a lot of potential buyers. This is basically still “entry-level” for Vancouver as of this writing, slowdown or no slowdown. That means if you get a hard case potential buyer, who sends a low-ball offer at $475K, you can comfortably ignore their offer or counter at your ask price, since you know it won’t take very long for someone to come along who’s willing to pay what the condo is evidently worth.
This game gets harder as a property gets bigger since the property will tend to have more unique qualities that can matter more or less to individual purchasers and that make comparison with similar properties less obvious. A detached home with a monkey puzzle tree in the back yard, a single room inconveniently placed room with a water view, and the world’s most incredible kitchen may need to be stacked up against a recent sale in the neighbourhood on the same size lot, fewer renovations, less finished floor area, and a laneway house that rents for $3K a month.
In such cases, and even in a flat market, a seller may be sad to discover the market is just not willing to pay what they thought their home was worth. There are also fewer potential buyers out there, so every offer that comes in may be the last one for awhile and needs serious consideration before it is dismissed.
Now imagine the home you need to sell has fifteen bedrooms, an infinity pool overlooking the ocean, and the home itself was designed by a world-famous architect now deceased. Good luck finding comps. Is it wrong to say you’ll be plucking a number out of thin air when you put a price on this property? How many potential buyers are out there? It could take years to find a purchaser. If someone offers $10M less than the asking price, you may seriously be scratching your head as to whether or not the offer is a reasonable one.
Over the last two years, a property listed for $17M in West Vancouver went for $11M. Same numbers for a lot in South Surrey. Another home in West Van listed at $17.28M (very precise!) went for $13.8M. $12.9M in Shaughnessy went for $10M. $18.8M in Southlands went for $13.8M. $15.8M list sold for $11M in Mission.
Needless to say, getting $650K for a property you listed at $1M is very hard to imagine.
When a market swings wildly, this only amplifies the effect.
So what can a buyer do with this information? If you’re lucky enough to be buying more expensive and unique properties, do not be afraid to send aggressive offers. If sellers are panicking and feel a prolonged downturn is underway, you owe it to yourself that much more to see just how low they might go.
Sellers are forced to define a floor price for themselves, with all of the available information and taking their personal circumstances into account. Your idea of a “floor price” may shift over time, but you need some kind of anchor to work with at any given moment.
As always, there is more to say on these topics, so do please reach out if you wish to continue the conversation.