The media has been all over this one. A semi-detached home in Kitchener which was listed for $500,000 has sold for $801,000 and the media has been all over it.
At first glance this seems like an outrageous price, why would someone overpay by $300,000? However, once you start looking at the whole picture and breaking down the details it starts to make a little more sense.
So let's properly break down what happened here, and try to understand why someone's realtor felt it was a normal price to pay for this property.
The first issue with everything we've been seeing in the media, and all of the social media snapshots being shared (like the one above), is that it doesn't show the whole picture.
We don't get any details about the home itself, and we don't get any details on what semi-detached homes have been selling for in the area recently. We just get the shock factors which are the low list price, high sale price, and outrageous number of offers.
Doom, gloom, and shock! By the end of this article you'll understand why all of these numbers make perfect sense (except maybe the list price).
The Subject Property
Let's start by looking at the details of the subject property first. It was a renovated semi-detached home, with a walk-out basement (nice bonus), backing onto green space (now we're talking!), and had potential for an in-law suite in the basement!
An in-law suite is like an accessory apartment with its own entrance, kitchen, bathroom, living space, and bedroom. That is a huge bonus as it's almost like you're buying two properties in one. It's ideal for an income helper, or for a large family/shared living setup.
Either friends could buy this together and split costs, or a multi-generational family could live here while each having their own separate space. This is a huge bonus of the property which is rarely mentioned in these dramatic posts being shared.
In addition to the potential in-law setup, the home backs onto green space, which means no neighbours and beautiful views!
Not many homes in our city have this added privilege, and when you are buying from a builder they charge anywhere from $50,000-$100,000 as a lot premium for properties which back onto green space or have view of green space. Another huge bonus not being mentioned anywhere.
Understanding The Market
Now, without understanding what's going on in the market it's difficult to assess whether or not someone paid an outrageous price for the property. So we have assessed the subject, but now we need to compare it to what is happening in the market.
For example, someone buying a semi-detached property with an in-law suite in Toronto and paying $300,000 over asking doesn't mean anything without the final price.
If this hypothetical Toronto buyer secured that property for $801,000 that would be an amazing deal! Even if they paid $500,000 over asking, as long as the final sale price is $801,000 it does not affect how good of a deal it was.
This whole $300,000 over asking is just a fancy shock factor. The number that matters is the final sale price, and how it compares to the market for similar properties. This is because the starting price is almost irrelevant.
There have been semis which sold for $860,000, heck there was even a semi-detached that sold for $967,000, but they don't make the news because the starting price was close to the sale price, and $50,000-$60,000 over asking just isn't shocking enough and click-worthy for the media to run ads on it.
So let's understand the market, the average price of a semi-detached home in the West end of Kitchener is $720,000. Now we have something to compare the sale price to, and to explain some of the shocking numbers being gloated on social media.
Analyzing The Sale
Let's start by agreeing that based on the details of this property it was an above average property. It backs onto green space ($50k-$100k value), and it has potential for an in-law suite ($1,200/month in rent = $14,400 yearly value).
The final sale price of $801,000 is $81,000 above the average sale price of a semi-detached. But the home arguably has over $100,000 in added value above the average semi-detached property. When we assess it with all of the facts, this buyer got a fair deal if not a great deal!
Let's break down some of the other shocking numbers: $301,000 above asking, and 53 offers.
The starting price was $500,000- that's $220,000 below the market average. That's more than 70% of the shocking $301,000 over asking being made up for by the home being listed way under the market average, let alone the other bonus factors the property had.
This also explains the shocking 53 offers. Of course it had 53 offers, I'm surprised it didn't have 100 offers.
The home was listed for $220,000 under the market average, every buyer looking for a property right now knew that was a great deal. Any agent who did their homework knew that their clients had to pay above the average price for this property.
Starting price doesn't matter, the amount over asking doesn't matter, the media loves to flash these numbers because they are shocking and entertaining but they are irrelevant.
What matters are the details of the home, current market conditions, the final sale price and how it compares to the others.
Once we filter out the noise and focus on the important facts we can clearly see that in this case the buyer paid a fair value for what they got.
Got questions? Agree or disagree? Let us know!