Thread by @Smarter_RE

Every time I meet with a new buyer lately one of the main concerns I hear (understandably) is how to avoid overpaying for their next home.

I thought it would be helpful to breakdown a solution to this problem.

Here is a 🧵 on 👉🏼HOW TO AVOID OVERPAYING FOR YOUR NEXT🏡
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Before you bid on your next home your Realtor should create a detailed Comparative Market Analysis (CMA). The goal of a CMA is to understand the homes true value before you decide to buy it. List price in the GTA is just that, a list price. Doesn’t always reflect true value.
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A CMA is similar to what a appraiser does for a bank or mortgage lender before they approve you for a mortgage. The lender wants to make sure the home you are purchasing is worth the money they are lending against it.
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If the appraiser discovers the home is not worth what the buyer paid for it they will only loan you up to it’s appraised value.

Meaning, if you pay 1.1M for a home & the appraiser values it at 1,050,000 the buyer is on the hook to come up with the other $50K to close. 4/

Buyer now needs to find $50k or else deal is in jeopardy.

As you can see this could get problematic in a market where multiple offers on homes are the norm & homes are consistently underpriced by sellers/realtors to create multiple offers to achieve a sky high sale price. 5/

So, how do you avoid overpaying on a home that’s priced super low & you will most likely be in a bidding war to win?

Answer👉🏼 A very good CMA.

Most CMA’s take between 45 - 90 min to put together depending on home/area. Condos are a bit easier & Freehold homes take longer. 6/

The repetition of this excersize takes patience, a must for understanding of a neighbourhood & home type, also understanding different price points ($500k vs $4M) can be tricky. Finally the knowledge of having the market 🌡 at that moment for that neighbourhood. 7/

There are a few different ways to put together a CMA. Details do matter, it shouldn’t be just looking up last sale close by.

I like to break down each comparable home by the following attributes much like a appraiser for a bank does:

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👉🏼 Home location/Neighbourhood, if its a Condo, look at similar sold units in the same building or sister building by same builder. Sometimes different buildings r not great comps as the buildings maintenance fees, amenities, age, reserve fund may all be different & affect it. 9/

👉🏼Narrow down the type of home, Condo, Townhome, Detached, 2 Storey, Bungalow etc.
👉🏼Lot Size is important on Freeholds(width of lot). For Condos Sq ft. ,view, layout or floor location, corner unit/penthouse vs rest of building.
👉🏼Rooms/Size, layout & overall size of home.
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👉🏼Parking spots & driveway, private vs shared, does it have a garage, is it built in or detached, double or single?
👉🏼Backyard, frontyard, quality of landscaping, pool or no pool makes a huge difference nowadays.
👉🏼Sometimes school catchment plays a role.
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👉🏼Street location, is it beside a commercial building? Quite residential cresent? Busy main or through St.? These all affect value to an extent.
👉🏼Age of mechanics, roof, Hvac, electrical, plumbing, windows all play a role & items not enough buyers pay attention to. 12/

How updated the home is & what is its overall condition is.

Ive seen homes with renos that are so poorly done that many of the items need to be addressed again vs a home thats been lived in for 35 yrs but its in impeccable condition. To me that’s nearly a wash. 13/

Next is finding the most recent comparable home sales nearby & noting the difference in each by + or - 💵.

Example, a new roof on a avg home is $7k, or new windows on a bungalow $20k. Laneway access homes in Riverdale usually sell more than a comparable home w no laneway. 14/

Now, the important part of this exercise is to understand that its not always a exact science. For example, the home may be worth 1.1M based on recent sales & all the attributes mentioned but we also have to take into consideration the 🌡 of the market in that neighbourhood. 15/

We need to better understand on a micro level how competitive or perhaps not competitive the area is today.

This is where legwork, experience, data plays a role. Find out how many offers the last couple of sold properties received. Are showings on other listings up or down? 16/

If a recent sale received 9 offers , 8 other buyers r looking to buy a similar home bcause they lost out. At least some of these buyers may offer on the next property which means its possible if the home you r offering on gets 6 offers it may sell for more than the CMA value. 17/

This does not mean you should pay that higher price for the home, but it does prepare you mentally & emotionally for whats to come.

As a buyer in a competitive mrkt it helps you rationalize & weigh the pros/cons/risks of paying more or not & decide how best to proceed. 18/

For example I once had a couple who wanted to buy a home on the same street as their parents. Mrkt was super competitive, last time a home sold on the same street was nearly a 8M ago. It made sense for them to pay a premium(+2-3%)its actual value because they could afford it. 19/

They also had the funds available to cover any appraisal shortfall & time was more important to them than waiting another 6-12 months for another home to come up.

Others will be patient & wait it out & that’s okay as long as they understand it will take time to buy.
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The key here is understanding the homes true value, it takes the guesswork out of offering on a home especially when a home is priced super low.

If you found this🧵useful kindly like ,retweet & follow me for similar content. #torontorealestate 🏡#realosophyrealty 21/ End