{"id":14786,"date":"2017-11-07T01:00:33","date_gmt":"2017-11-07T06:00:33","guid":{"rendered":"http:\/\/www.zoocasa.com\/blog\/?p=14786"},"modified":"2017-10-27T13:53:42","modified_gmt":"2017-10-27T17:53:42","slug":"what-are-comparable-real-estate-sales","status":"publish","type":"post","link":"https:\/\/www.zoocasa.com\/blog\/what-are-comparable-real-estate-sales\/","title":{"rendered":"What Are Comparable Real Estate Sales?"},"content":{"rendered":"

When you contact a real estate agent to sell your home, part of their job is to tell you what your house will likely sell for. They don\u2019t pull that number out of thin air – they tap into comparable sales, sometimes known as \u201ccomps\u201d for short, to determine a reasonable value for your home. In this post we\u2019ll look at how comparables work, and how they can impact your financing.<\/p>\n

What Are Comparable Real Estate Sales?<\/h2>\n

For more than a decade now, multiple offer \u201cbidding wars\u201d have been the norm in the Toronto real estate<\/a> market. One of the downsides to this has been that after \u201closing\u201d in previous bidding wars, some buyers throw caution to the wind and offer significantly higher than the asking price to ensure their offer \u201cwins.\u201d But paying more than a house is really worth can have bigger ramifications than just buyers\u2019 remorse.<\/p>\n

Related Read: How to Win an Emotional Bidding War<\/a><\/strong><\/p>\n

Before issuing a mortgage, your financing company will want to determine your loan-to-value ratio, and your ability to carry your mortgage. A particularly high home sale price might raise some warning flags at the bank during this step, leading them to call in an appraiser to determine the true value of a home. The bank wants to ensure they\u2019re not paying for a home that\u2019s overvalued and that could risk depreciation.<\/p>\n

For example, let\u2019s say that in the frenzy to get that lovely two-bedroom Toronto townhouse<\/a> that\u2019s close to work, you ended up paying $600,000 for it. Before finalizing the mortgage, the lender calls in an appraiser who looks at the sale price of other two-bedroom townhouses in the area that sold recently and calculates the property is only worth $520,000.<\/p>\n

If you didn\u2019t include any conditions on financing with your offer, you\u2019ll need to somehow figure out a way to come up with that $80,000 difference \u2013\u00a0along with your down payment \u2013\u00a0or withdraw your offer, meaning you\u2019ll likely lose your deposit and face some hefty legal headaches.<\/p>\n

Related Read: What Happens When a Buyer Walks Away from a Real Estate Deal?<\/a><\/strong><\/p>\n

For sellers in a cooling market \u2013\u00a0such as we seem to be in now \u2013 the price your agent gave back at the beginning of the sales process may not accurately reflect current market conditions by the time you get to offer night. That could lead to you have higher than realistic expectation or, worse, spend more on your new home than you can afford from the proceeds of the sale of your current one.<\/p>\n

Apples and Oranges<\/h2>\n

While banks will only use reputable appraisers (certified by the Appraisal Institute of Canada), there can be some grey areas when determining comparables.<\/p>\n

When appraising that townhouse, for example, an appraiser will ideally find truly comparable units within your complex. But if nothing\u2019s sold in the area recently, they\u2019ll have to go further afield to find comparables.<\/p>\n

But anyone who\u2019s been in the market for a house knows that one two-bedroom townhouse with parking is not the same as all the others. Some condos, for example, have extensive amenities such as gyms, basketball courts, and pools. With others, the shared amenities may amount to little more than the laneway leading to the parking spaces.<\/p>\n

But by focusing on a few key parameters (square footage, number of bedrooms and bathrooms, parking spot or not) the appraisal can skew the value they give your home up or down significantly.<\/p>\n

Comparables When Refinancing<\/h2>\n

Even if you have no plans to move, comparables can impact your finances. Say you\u2019ve decided to refinance your home in order to take out some of its built up equity so that you can undertake the renovations you\u2019ve always wanted.
\nIn most cases, part of the refinancing process will involve having a professional appraisal. If you were hoping to tap into a significant amount of equity for your renovations, now might not be the best time to refinance.<\/p>\n","protected":false},"excerpt":{"rendered":"

When you contact a real estate agent to sell your home, part of their job is to tell you what your house will likely sell for. They don\u2019t pull that number out of thin air – they tap into comparable sales, sometimes known as \u201ccomps\u201d for short, to determine a reasonable value for your home. […]<\/p>\n","protected":false},"author":49,"featured_media":14787,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jnews-multi-image_gallery":[],"jnews_single_post":[],"jnews_primary_category":[],"footnotes":""},"categories":[76],"tags":[],"class_list":["post-14786","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying-a-home"],"yoast_head":"\nWhat Are Comparable Real Estate Sales? | Zoocasa Life<\/title>\n<meta name=\"description\" content=\"What are comparable real estate sales and why are they important when buying a home and applying for a mortgage? 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