Market Value

This post is 7 years old. The data and my views may have since evolved.

Ah, market value.  That magical amount of money that a property is worth.   It’s commonly stated that a property properly exposed to the market will sell for market value.   But what is that really?   Some people think that market value is whatever a property sells at, but that is not necessarily the case.   Ask the people who’s business it is to estimate market value and they will say market value is:

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale

Those guys aren’t concise.   And that definition is littered with other terms that can’t be precisely nailed down.   How motivated could a buyer be and still be considered “typically motivated”?  What constitutes sufficient advice to be well advised?   Do incentives like the government’s free money for first timers count as undue stimulus?

Perhaps even more importantly many of these factors cannot be determined based on market data.   You can’t tell from sale data whether a seller was forced to sell to pay off a debt to the mafia or merely wanted to downsize.  Neither can you tell whether the winning bid in a multi-offer situation was an irrational one brought about by unbridled house lust or a perfectly calculated offer that came in a few hundred above the next one.

Because a real estate market is both informationally and transactionally inefficient, the concept of market value becomes pretty fuzzy.   That’s why if you ask BC Assessment, your bank’s appraiser, and Landcor about the value of a house, you’ll get three different answers.

But what about condos?  Surely with a product that is fairly uniform we should see a very narrow range of market value, with sales of the same unit types selling for about the same prices and changing only with the greater market.

Let’s take a look.  Here’s a 12 floor tower downtown that has, like most, a very uniform selection of units.  We’ll only look at one bedroom, non-penthouse units in this complex between 700 to 800 square feet to keep the sales comparable.

Overall you do see sales roughly converging around what might be considered market value and following the changes in the market, but there are quite a number of outliers as well.   For example, last May a place sold for $563/sqft when other units were selling for some 20% less.   Granted it was an 11th floor unit, but historically those had a much smaller premium to mid level units in that building.

So the question is, was it an irrational buyer?  If so did their agent warn them that they were paying well above norm for this building?

On the low end, there are some interesting deals as well.   For example in 2011 a 6th floor unit sold for $368/sqft while the unit below it sold deep into the fall for $421/sqft (or $40,000 more).   Was it because the 6th floor unit sold after only 11 days on market, while the others were exposed for an average of 54 days that year?  And what did the sellers of that bargain unit think about their agent?   Maybe “Our REALTOR® was great.  We got a full price offer after only 11 days!” 

No wonder the Toronto Real Estate Board is still fighting the war against data.  Of course, it is entirely possible that in both of these cases the sellers and buyers were very well advised and decided to overrule that advice because they wanted to get out fast, or absolutely had to have just that unit and were OK paying the premium.   I just hope that decision was made with eyes wide open.

In the meantime, unlike stocks that are pored over by thousands of analysts and tens of thousands of automated systems, the lack of information and abundance of emotion in the real estate market allows this variability to exist.  You might find a deal, or you might get fleeced.  Good idea to pay attention.

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islandscott
islandscott
September 18, 2017 9:33 am

Thanks Leo.

Hawk
Hawk
September 18, 2017 7:58 am

1540 Pear St reno flipper slashed $30K. 1716 Albert Ave starter house on slash #2 for a $25K total slash.

New build at 1705 Haultain St slashed $15K. Not the first one there I recall.

Sooke has been racking up the slashes the past few weeks. Everything starts from the outside in they say.

islandscott
islandscott
September 18, 2017 7:52 am

Anyone know what 1216 Loenholm Rd sold for? Saw a sold sign on it a few days ago, but still shows as current.

Barrister
Barrister
September 17, 2017 10:55 am

Sidekick:

That is a good observation as to worthwhile steps. Curious whether any renovators actually take photos of their work much less whether they want to share them. Still never hurts to ask. They are looking at one of the neighbours houses today that will be a private sale if they pick it up. Sadly the gentleman had a stroke and the house has to be sold.

John Dollar
John Dollar
September 17, 2017 9:54 am

I am hopeful that given the switch to provincial oversight from self-regulation, the council will hopefully appreciate what I’m trying to do here, which is provide a platform for the public to educate each other and get closer to the truth about one of the biggest purchases most people make in their lives.

And I think you are doing a good job of not slipping unintentionally into disclosing things that should not be on a public blog.

There are some things that should be obvious to people. Such as you should limit your comments on a property that is listed for sale or the agents involved whose income depends on that information. Some times in the heat of a discussion, honest mistakes are made but if you have someone collecting data on you for years, it gets you wondering why?

You can’t do much when the data is out on the internet. That’s why anonymity on this blog is so important. People should change their passwords AND their blog names regularly to protect themselves.

John Dollar
John Dollar
September 17, 2017 9:22 am

This will work for you to find the foreclosure applications.

https://justice.gov.bc.ca/cso/courtLists.do

Sidekick Spliff
Sidekick Spliff
September 17, 2017 8:32 am

– it can be really challenging figuring out the quality of a renovation. I think your observations are probably correct with respect to the quality of what is visible. If your friends are serious, you could ask to view the OB inspection slips, and ideally the renovators will have taken photos of the walls prior to boarding.

Andy7
Andy7
September 16, 2017 10:37 pm

Re: John Dollar
re: foreclosures
September 14, 2017 at 3:13 pm
Just google the Courts of British Columbia and then look under Supreme Court and select Victoria, Vancouver and/or New Westminster.

John Dollar — I can’t find the info — can you clarify a bit further. Once I look under the Supreme Court, I don’t see the Vic/Van/NW selection. Thx.
http://www.courts.gov.bc.ca/supreme_court/

John Dollar
John Dollar
September 16, 2017 6:21 pm

Wait till 2037

Introvert
Introvert
September 16, 2017 6:09 pm

2554 Shakespeare St on slash #2 down another $40K for a total slash of $70K to $689K. Even the once hot Oaklands places in need of a gut job aren’t getting scooped.

Wait till spring.

Learner
Learner
September 16, 2017 6:04 pm

Great news

John Dollar
John Dollar
September 16, 2017 5:52 pm

Caveat, it just sounds like too much “big brother” government to me. Private enterprise is already doing it, why put these companies out of business.

Hawk
Hawk
September 16, 2017 5:18 pm

2554 Shakespeare St on slash #2 down another $40K for a total slash of $70K to $689K. Even the once hot Oaklands places in need of a gut job aren’t getting scooped.

caveat emptor
caveat emptor
September 16, 2017 4:27 pm

The government could publish the data from the land registry but they would have to pay the real estate boards in BC for their data and then maintain the data base.

I was just thinking the data they get from the land registry / administration of PTT. That would be good enough/recent enough to serve the public interest.

Getting data from the RE boards is not out of the question though. Depending on the enabling legislation (Real Estate Services Act) they might be able to pass a regulation requiring RE boards to submit the data. Otherwise they could amend the act to require it.

John Dollar
John Dollar
September 16, 2017 4:18 pm

The key to a VPN is that it lends you a temporary IP address and hides your true IP address from every website or email you connect with

Introvert
Introvert
September 16, 2017 3:41 pm

“… people who’s business it is …”

I noticed that too.

Barrister
Barrister
September 16, 2017 2:47 pm

I just went to an open house on Exeter Rd in the Uplands with a a friend who is looking. It was an extraordinary piece of crap renovation. The finishing work looked like it was done by a stoned kid who had just dropped out of high school this week. Cheap windows, cheap flooring and cheap hardware. These are all the red flags that signal that the parts of the construction that is not visible are done as cheaply as possible.

That leads me to a question for the group. What do you look for when trying to judge the construction quality of a house? (I know that this is a house question and not a tax question but I figured I would throw it out anyways.)

John Dollar
John Dollar
September 16, 2017 2:08 pm

~15 years old. I didn’t publish the address because I don’t want to end up with a cease and desist letter.

That you’re a member of the board and provides a platform for open discussion, is daring.
Luckily you don’t depend on this data for your livelihood. Because if you did you would have concerns of some that are collecting your comments – for some nefarious purpose?

John Dollar
John Dollar
September 16, 2017 11:57 am

2017 is shaping up to be the year of the condominium in Victoria’s core districts. A 15 to 20 percent bump in prices as home owners flocking to buy more investment properties. And high rents caused by a low vacancy rate and vacation rentals sucking up month to month rental inventory buoy up the income side of the sales.

But are they really a smart choice for investors? Assuming that most investors are using the equity in their homes as the down payment could they be getting a better return buying mutual funds with their equity rather than a condominium.

For example a $375,000 condominium that rents at $1,800 a month.

numbers hack
numbers hack
September 16, 2017 11:23 am

Oak Bay home listed below assessment:
2345 Cranmore has just been listed at 97.8% of BC Assessment’s 2016 valuation. First, below assessment listing I’ve seen in Oak Bay. Suggests that this is no time to buy, unless it’s the property you just have to have.

@CS
This is very decent value on a per sq ft basis. 21000 sqft lot @ 1.2MM.
Not the most optimal use of space and the house is 110+ years old.
If I was a developer, I’d buy it and turn it into townhouses. Probably fit 10 down that lot.
Be surprised if someone pays that price to actually live in it without some extensive renovations.

John Dollar
John Dollar
September 16, 2017 10:35 am

There have been a few properties this year in Saanich East, Oak Bay and Victoria that have sold under their assessed value.

And I would expect that to happen more often as these three areas were inflating in price faster than the surrounding areas. Now that the market is cooling, the irrational bidding wars are declining and the rate of appreciation has dropped to half that relative to the surrounding hoods.

This had to happen as we have been moving away from a shortage of houses for sale in the core towards a balance. If you bought a house in the spring in these three areas, and had to sell today the probability is that you would sell for less than your purchase price.

John Dollar
John Dollar
September 16, 2017 10:27 am

What I would like to see is that we elect our local political representatives and then after the election the representatives choose the Prime Minister.

The power base thus comes from the local level or ground up.

CS
CS
September 16, 2017 10:24 am

Oak Bay home listed below assessment:

2345 Cranmore has just been listed at 97.8% of BC Assessment’s 2016 valuation. First, below assessment listing I’ve seen in Oak Bay. Suggests that this is no time to buy, unless it’s the property you just have to have.

John Dollar
John Dollar
September 16, 2017 10:20 am

I think the government should distribute it for free on their DataBC site

The government could publish the data from the land registry but they would have to pay the real estate boards in BC for their data and then maintain the data base.

Far easier just to sell to one corporation rather than hundreds or thousands of individuals and have one or a few companies like Landcor buy the data from them and then they can publish it.

The point I’m trying to underscore is that the data is available. But you’re not going to get recent data for free. So unlike Ontario, I doubt that you will ever be able to force the various real estate boards in BC to make this available on a non contract basis to the public and most certainly that will not be free either.

CS
CS
September 16, 2017 10:10 am

@ beancounter:

““Everybody should be paying taxes,” Wozny said. “Taxes should be a privilege. We should enjoy paying them.”

Although it might not make them enjoy paying taxes, it might make folks less reluctant to pay taxes if they received recognition for their contribution to the public good. Moreover, if everyone’s tax contribution were known, it would make tax avoiders and evaders subject to the penalty of public disapprobation. Indeed, it might force government to institute a tax regime that approximated the general public’s idea of fairness.

Thus I propose the award of Tax Medals, to be worn on all formal occasions:

The Iron Tax Cross for anyone paying any amount of tax.

The Tin Tax Cross for those paying in excess of $1000 dollars in tax.

The Bronze Tax Cross for those paying in excess of $10,000

The Silver Cross for those paying in excess of $100,000

and so on up to a the Rhodium Tax Cross for those paying in excess of $1 billion in tax.

I’d also like to see Senate appointments going to the top 100 tax payers. The plutocracy run the country anyway, so they might as well justify themselves in the Senate. It might result in no improvement in government, but it should facilitate the collection of taxes as rich people vie for the honor of elevation to the Senate.

Hawk
Hawk
September 16, 2017 8:40 am

“Beat me too it LeoS, lol.

Beancounter beat us both by several hours.”

Kudos to Beancounter.

Condo listings keep soaring to new year highs. I thought everyone wanted one for an “investment” ?

A nice view from 3735 Cadboro Bay Rd slashed $100K. Ouch.

An Oak Bay slash of $50K at 745 St. Patrick.

Sweet 5 acre place in Prospect Lake Rd slashed $54K.

A reno flipper on 620 W Gorge Rd slashed a mere $14K. The flippers are the stingiest slashers but don’t realize it will take more than that. Nice job but almost $700 a sq ft ?

Hawk
Hawk
September 15, 2017 7:19 pm

Debt bomb continues to expand like a bloated pig about explode.

Canadians’ Debt Hits Record High As Wealth Stagnates

“A decline in household net worth, albeit modest, alongside a sharp increase in consumer credit growth are notable as together they suggest that the ability of households to absorb higher interest rates continued to deteriorate,” RBC economist Laura Cooper wrote in a report.”

http://www.huffingtonpost.ca/2017/09/15/canadians-debt-hits-record-high-as-wealth-stagnates_a_23210570/?utm_campaign=canada_newsletter

gwac
gwac
September 15, 2017 6:26 pm

thanks John

965k and assessed 1011k. Interesting to see what the get. Nice return for 2 years. They have done work both in and out.

Luke
Luke
September 15, 2017 6:21 pm

Absolutely true Hawk.

More than half of OB and Victoria homes are like that…that’s why I keep going on about how rare it is to find a quality home there. Saanich on the other hand with a newer housing stock has more quality homes.

You post your real ocean view and then I’ll post a pic of my place ;-)… Deal?

John Dollar. Thanks for the link. I’m noticing they’re posting sold prices on evalue much sooner after the sale closes than they used to.

John Dollar
John Dollar
September 15, 2017 5:48 pm

Can someone tell me what this sold for a couple years ago?

You can look it up on e-valueBC

https://evaluebc.bcassessment.ca

John Dollar
John Dollar
September 15, 2017 5:44 pm

Using your rationale the government should not be distributing weather or climate data, air quality data, water quantity and quality data.

Distributing sales information for free when private enterprise is currently doing so at a profit is not the same as providing information for the public good where private enterprise could not make a profit. Besides would you trust private enterprise to be honest about the climate when big business, like oil companies, can buy the results they want.

gwac
gwac
September 15, 2017 5:41 pm

MLS® #: 383278
972 Shadywood Dr
Saanich East, BC V8X 4C3
$1,399,000

Can someone tell me what this sold for a couple years ago?

18 houses for sale in Broadmead. Near the high of the last couple of years.

James Soper
James Soper
September 15, 2017 5:40 pm

AZ

Danke

Triple A rated
Triple A rated
September 15, 2017 4:44 pm

Can anyone offer advice on whether Window Ell’s can encroach on side setbacks. My understanding is that setbacks are created for above ground structures.

Our basement has no means of exit and I’m looking at options on how to proceed and whether having 2 windows cut into existing foundation.
A) for enhanced daylight
B) for emergency exit

Does a Door and stairs need to be installed ?
This is an unfinished basement I would like to complete and put in a small music studio.

It would not have a bedroom.

John Dollar
John Dollar
September 15, 2017 3:04 pm

The question is… what if a property is so unique it has no comparables?

There are always comparable sales. If you think of comparable sales as economic indicators of value rather than the only way to estimate value. Then the comparable sales show a direction in value. Bigger homes typically sell for more than smaller homes. The same for lot size and views. A southerly view is worth more than a northerly view. Now you just have to quantify the differences which may be calculated using a spread sheet.

The hypothetical assumption in any market value estimate is that the property being appraised has been up for sale for a reasonable period of time so that it has been adequately exposed to the market along with the comparable sales. That the prospective purchasers for the property would also considered these sales as alternatives that they could have purchased instead of the subject. The sales are simply economic indicators demonstrating that a demand for the property exists at these prices.

If you appraise contaminated sites and leaky condominiums there is no such thing as identical sales as the cost of remediation is different for all of them. In these cases you need to determine the profile of the buyers for this type of property and how it can or can not be financed. Even the Navy dockyards have to be appraised and you don’t find Navy bases selling in the market place. The same with airports and mines. For each different type of property there has been a methodology of how to value the property

It’s a poor appraiser that only can value property if she needs three identical sales to develop a comparison approach. That’s not an appraiser that’s a data entry clerk.

AZ
AZ
September 15, 2017 11:48 am

“Anyone know what 1463 Finlayson Pl went for?”

725k

Hawk
Hawk
September 15, 2017 11:06 am

Beat me too it LeoS, lol.

Hawk
Hawk
September 15, 2017 11:03 am

The NDP best get a grip on the tag of “money launderer’s paradise” for BC.

Tax avoidance behind Metro’s disconnect between housing, income

“Canada has become a freeloader society” in which some mansion owners have found ways to avoid reporting their total incomes to the Canada Revenue Agency, said Wozny, who will speak on Sept. 25 at the convention of the Union of B.C. Municipalities in Vancouver.

“The Americans would never tolerate such free riders. Canada has become a money-launderer’s paradise,” Wozny said in an interview.

“Seattle’s incomes are far higher than those in Metro Vancouver, and its economy is many times larger, yet its housing prices are far lower than they are in Metro Vancouver. The difference is that Seattle is governed by laws that tax worldwide incomes, and which don’t allow un-monitored capital flows.”

http://vancouversun.com/opinion/columnists/douglas-todd-tax-avoidance-behind-metros-disconnect-between-housing-income

Hawk
Hawk
September 15, 2017 11:00 am

Luke, can you post some pics of your place ? I’m sure most would like to see what a perfect place is like as you seem to be the expert on what is worthy of the HGTV accolades and what defines a crapbox.

ICYMI, half of Oak Bay homes are crap boxes with nice outside paint jobs and a few plants and bark mulch but inside are very small rooms and moldy low height basements.

caveat emptor
caveat emptor
September 15, 2017 10:51 am

You can get all the data you want – you just have to pay for it. You’re not going to get this information for free and you shouldn’t as it costs money to collect the data.

Using your rationale the government should not be distributing weather or climate data, air quality data, water quantity and quality data.

Collecting all of this data requires a vast and extensive physical infrastructure. Far more expensive than collecting sales history which must be collected anyhow for the purposes of the PTT.

Technically the government shouldn’t even be telling you whether a tsunami is coming unless you sign up and pay for the alerts and promise not to disclose the warning to your freeloader neighbour.

James Soper
James Soper
September 15, 2017 10:49 am

You have to admit though. Canadians compared to United States. Canadians are more savvy.

Not really. Across the board we’re paid less for the same jobs.

caveat emptor
caveat emptor
September 15, 2017 10:43 am

The government can publish the sales data from the land registry but at a cost. Instead they sell that information to LandCor and they will charge you for the data. The government isn’t in the dissemination of sales data to individuals business.

The government can decide what government data they make available to the public and whether they charge for it or make it free. There is lots of free data available that costs the government millions to collect. Why does the government distribute it for free? Because they believe it is in the public interest to do so.

You can get all the data you want – you just have to pay for it.

You are just describing the current situation. This is not a law of nature. It could be changed and I argue it should be changed.

You’re not going to get this information for free and you shouldn’t as it costs money to collect the data.

This is a flawed rationale. All data the government collects costs something. Even for data that is very cheap or easy to collect there is still a cost to provide the architecture to distribute it. If cost was a valid criteria that should preclude free sharing of government data then there would NO government data available for free.

The actual valid rationale for deciding whether and how data should be distributed is public interest. What is in the public interest? Distributing the data for free? Distributing the data at a cost? No distribution? Maintaining the data as confidential?

Luke
Luke
September 15, 2017 10:32 am

It’s easy to compare condos with lots of comparables. Or those 70s box like houses in places like GH that all look the same. Or the endless similar cookie cutter homes in Langford. However… try to compare a very unique property and you have a problem. The question is… what if a property is so unique it has no comparables? It could be a custom house or in a unique location with an unparalleled view. That’s when you could end up rather stuck trying to get a value on it… these are the types of prized properties outside the norm that can really be a rare opportunity… if you can find one 😉

Local Fool
Local Fool
September 15, 2017 10:28 am

Just one, but it varies the IP. Usually Seattle or Calif, or it’s off.

Curious your opinion on something. I accept the rebuttal of “fundamental value” for RE, at least when talking about money. In that sense, no, there’s none.

What would you call though, the notion of someone saying that broadly and over the long term a home’s value is expected to reflect the economy around it plus inflation over time, with the long term ratio being 3-4 times income for many areas, some 4-5. I know that’s not market value, I know that not fundamental value – but it’s like, when prices are 10 times income, we know there’s an imbalance, but only because it conflicts with those “generally accepted” notions of what constitutes affordability. It seems to lead to the concept that there is a fundamental value somewhere, yet there isn’t. But we know it’s not $10,000, or $100,000. What do you call that? It feels nebulous, like defining a “reasonable person”. Most know what it is, but can’t really say. Honestly curious, I have no idea myself. Or am I overthinking again…

James Soper
James Soper
September 15, 2017 10:26 am

Anyone know what 1463 Finlayson Pl went for?

John Dollar
John Dollar
September 15, 2017 10:01 am

I always thought you had multiple VPNs

Local Fool
Local Fool
September 15, 2017 10:01 am

Canadians compared to United States. Canadians are more savvy.

If we were, we wouldn’t tolerate consumer prices far in excess of that indicated by the difference in the dollar. Ditto for taxes, ditto for the disparate cross border merchandise limit. Too “polite” to meaningfully demand any better.

Sorry…I’m feeling oppositional this morning. 🙂

John Dollar
John Dollar
September 15, 2017 9:58 am

The government can publish the sales data from the land registry but at a cost. Instead they sell that information to LandCor and they will charge you for the data. The government isn’t in the dissemination of sales data to individuals business.

You can get all the data you want – you just have to pay for it. You’re not going to get this information for free and you shouldn’t as it costs money to collect the data.

As for cutting into the appraisal business. Not likely. The appraiser isn’t paid for presenting sales data she is paid for interpreting and reconciling the data. If a town has only one appraiser in it then she would only scrape out a living. If there are two appraisers then both will do well financially because they will interpret the data in different ways to form an opinion.

For example I had a call yesterday from a lady that had an appraisal done for mortgage purposes for $300 last year but now needs one for a legal separation but doesn’t want to use the last appraiser because he did not talk to her very much. My fee is $500 and $500 per half day of court work plus a half day for preparation.

You’re mad at that appraiser – fine. This is what it’s going to cost you.

YeahRight
YeahRight
September 15, 2017 9:46 am

You have to admit though. Canadians compared to United States. Canadians are more savvy.

fizzy
fizzy
September 15, 2017 9:13 am

“… people who’s business it is …”

caveat emptor
caveat emptor
September 15, 2017 8:53 am

Unlike the US where Zillow provides a valuable service with details of recent sales getting this information in Victoria is extremely difficult. Perhaps it is time for the new government regulators to step inand force the boards to provide full disclosure of recent sales like Zillow does in the US.

The government has all the sales history for properties in BC. Why not just publish it on Data BC and make it available for free. That would be consistent with our government’s Open Data policy.

There would indeed be a strong public interest mandate for doing so as it would better inform consumers around the largest purchase they make in their lives.

Agents would hate this. Their relative monopoly over the information is one reason people hire agents. it might also cut into appraisals a bit, though realistically a lot of people would still need help to figure out how all those potential comparables translated to a value range for their property.

But no need to “force the boards” to do anything. The gov’t can just publish the information they already get.

John Dollar
John Dollar
September 15, 2017 8:29 am

Unlike the US where Zillow provides a valuable service with details of recent sales getting this information in Victoria is extremely difficult. Perhaps it is time for the new government regulators to step inand force the boards to provide full disclosure of recent sales like Zillow does in the US.

I don’t agree with that statement. You can get most of the data you’re looking for from e-value BC on all properties in BC. They show the past sales history of the property for the last three years.

You can also call up most agents that will give you that data for free.

It takes a little bit of effort but the data is readily available.

And if you want all the sales data, you can pay a sub-contractors fee to the board of around $3,000 per year. But you have to sign a contract so that you do not abuse the system for your own financial gain at the expense of the board.

Or you can pay for a membership with Landcor.

So unlike Ontario or the USA there are a lot of options available to the public in BC. If you want all of the recent data then you’ll have to pay for it just like agents and sub contractors to the board have to and sign a contract.

caveat emptor
caveat emptor
September 15, 2017 8:29 am

From the Globe today https://househuntvictoria.ca/2017/09/14/market-value/#comment-32113

Some interesting facts from RBC’s Ms. Cooper, as of midyear:

“If rates were to rise 100 basis points over the next year, households, in aggregate, would have to allocate an additional 2 cents of every $1 of income to servicing debt.” Well, we’re halfway there.
“Interest payments on non-mortgage debt are equal to the total interest costs associated with mortgages, despite total non-mortgage debt balances being lower.”
Loans for vehicles represented 15 per cent of debt, with delinquencies on the rise.
“The aggregate value of home equity in Canada is lower once home equity lines of credit are taken into account.”
“One in 10 older-age households had debt in excess of $100,000 in 2016, posing potential challenges for future retirement security.”

It’s not all doom and gloom:

One-third of Canadian households have no debts, and 25 per cent of them owed below $25,000 last year.
Delinquency rates were tiny, just 0.3 per cent.
Assets eclipsed credit balances by almost six to one.
Unemployment was forecast to ease.

I found the bolded fact interesting. Doesn’t sound too terrifying.

Local Fool
Local Fool
September 15, 2017 8:27 am

If you regarded low interest rates as “undue stimulus” during a valuation then you’d be looking back to 2008 and before for valid comparables and that wouldn’t give you a very credible result.

Yes, I see what you mean. I suppose an “undue stimulus” is not necessarily an actively operational actor, (ie its presence may or may not immediately ignite the market) but in this case for instance, could you say that the low interest rates provided the enabling factor for the stimulation to occur?

caveat emptor
caveat emptor
September 15, 2017 8:25 am

Or transactions between family and friends.

I think the competitive and open market part of the definition takes care of that on.

caveat emptor
caveat emptor
September 15, 2017 8:22 am

Low interest rates certainly count as undue stimulus to a housing market. As does excess liquidity, and easy credit.

Perhaps stimulus to the market, but a market-wide factor would not be undue stimulus when valuing a single property. If you regarded low interest rates as “undue stimulus” during a valuation then you’d be looking back to 2008 and before for valid comparables and that wouldn’t give you a very credible result.

YeahRight
YeahRight
September 15, 2017 8:19 am
John Dollar
John Dollar
September 15, 2017 8:15 am

Unlike cans of tomato soup no two properties are identical. Neither are two buyers identical in their incomes, down payments or ability to finance. You are going to have variations and that’s why market value is not an exact number. It’s a range and depending on the spread of the data and current market conditions the spread could be 3 percent for track housing in Langford or 15% for unimproved acreage in Metchosin.

Even with condos you haven’t yet adjusted for date of sale, location, location within the building, view amenity, age, condition or diminishing utility. And if your data is from a new building then you have a building where all of the units are controlled by one seller where the developer is using the sales within the building that may have never have been exposed to the open market to justify prices to prospective purchasers. Which is not an acceptable practice to meet minimum lending regulations from most banks.

You don’t like the definition of market value? Well that definition has been hammered out by the courts over a century. From time to time that definition is revised for changes in the market. And what you have there is the short version of market value. For example that shortened version doesn’t explain what currency the property is being purchase with, Canadian, American, Bitcoin. Nor does it directly address businesses included in the sale of real estate such as apartment buildings or airbnbs. Or the terms and conditions that may also make the property more or less valuable such a long possession date or a lease back at over market rents. Or transactions between family and friends.

The shortened version is used in residential appraisal because it is a paragraph that fits onto a form. Most of these should exceptions should be self-evident for residential purposes. Because of that it has to be “fuzzy” otherwise it would be a page and more long.

The concept of market value while seemingly simple to most is in practice difficult and challenging for most people to understand.

What a property sells for is its Market/Sale/Purchase Price not its market value. However it may or may not have sold at Market Value. Most properties do sell at Market Value but not all.

Their are some on this blog that have invented their own concept of value called “fundamental value” There is no such thing. There is only Market Value. Within that market value definitions is limited marketing exposure and duress. The property is to be exposed to the market for a reasonable period of time and that’s why deferred sales or blind auctions may or may not be at fair market as deferred listings may not be an orderly liquidation of the property but an auction. And it may be questionable if a real estate agent is licensed to sell a property without disclosing to the public the limitations on market exposure. The same with properties being sold under foreclosure. Under normal marketing conditions their are warranties and protections implied but not when you buy a court ordered sale. You can’t sue the court for undisclosed conditions of the property you bought.

So yes the definition that you have there is fuzzy but it has to be to fit on a page and allow for all the exceptions that crop up.

Local Fool
Local Fool
September 15, 2017 8:10 am

But some buyers just want a place to park their butts at night and really don’t care so much about what house it is.

I’m not sure how many buyers looking to buy a home to live in, will go, “any house will do – doesn’t really matter.” Buying a home is typically an emotionally investive experience, which in some conditions leads to irrational outcomes.

Don’t think that’s the same thing as motivation. But okay – perhaps you could say “impetus” in place of my definition of motive, and consider degree of motive as the level of emotion existing alongside the impetus. But then you’re delving into philosophic discussion that really has no fundamental answer.

Beancounter
Beancounter
September 15, 2017 8:05 am

http://vancouversun.com/opinion/columnists/douglas-todd-tax-avoidance-behind-metros-disconnect-between-housing-income

Someone tell Mr. Morneau that if he wants to bring legitimacy to the word fairness, then be serious about it.

“They say unenforced laws allow wealthy speculators to avoid taxes by using trusts or companies to purchase real estate, by falsely claiming they are not “residents of Canada” for tax purposes and by buying residential property in the name of “proxies,” such as low-income spouses or children.

Even though Wozny considers himself a fiscal conservative, he said B.C. and Canada desperately need tax-code updates so that investors who buy multiple residential proprieties contribute more to their communities.

“The public has been cynically abandoned by governments. Real-estate is an essential building block of the middle classes,” Wozny said. But hard-working people are being squeezed out of ownership, he said, by speculators who put too much demand on Metro’s real-estate market and who aren’t carrying their social weight.

“Everybody should be paying taxes,” Wozny said. “Taxes should be a privilege. We should enjoy paying them.”

What would be interesting is if it were possible for someone to ballpark the amount of missed tax revenue (provincially and perhaps nationally) using available data.

Local Fool
Local Fool
September 15, 2017 7:58 am

How motivated could a buyer be and still be considered “typically motivated”?

If I understand you correctly, I think you’re meaning, “How strong a desire to buy could a buyer have and still be considered a buyer with a typical level of desire to buy”.

I see the question of “motive” differently – what is the reason they want the home? A typical buyer is motivated by the acquisition of shelter. A typical seller is motivated to discharge their shelter in exchange for yet another. On the fringe edge of this is an investor, but then again that’s not a “typical” buyer just by their proportion in the marketplace. And then speculators – that’s atypical, especially in this asset class, but they tend to proliferate in bubbles.

What constitutes sufficient advice to be well advised?

Someone who has enough information to make a reasonable decision given prevailing market conditions. From there, we can get reductionistic and start asking, what is a reasonable person? How do we apply a reasonable person test?

Do incentives like the government’s free money for first timers count as undue stimulus?

Low interest rates certainly count as undue stimulus to a housing market. As does excess liquidity, and easy credit.

Hawk
Hawk
September 15, 2017 7:49 am

Speaking of condos I’m seeing a new year high in listings and price slashes still in the so called hot zones for 2 bed, 2 bath under $500K.

Barrister
Barrister
September 15, 2017 7:34 am

Unlike the US where Zillow provides a valuable service with details of recent sales getting this information in Victoria is extremely difficult. Perhaps it is time for the new government regulators to step inand force the boards to provide full disclosure of recent sales like Zillow does in the US.