Lately I've been thinking a lot about how, when it comes to real estate, 'value' is rarely precise or uniform. While, economically, 'market value' is calculated by how much a person or group is willing to pay for something (i.e. a dwelling), it also has a subjective component - differing from individual to individual - formed by the addition of unique needs, personal experiences, and even emotional responses to the 'value' equation (i.e. how well the house matches your likes and dislikes or how you feel when you cross the threshold).
Housing, of course, doesn’t merely fulfill our fundamental need for shelter or security; a home appeals to a wide variety of human needs that change as we enter different stages in our lives. This is why 'value' can be such a fluid construct when it comes to real estate. I recently wrote about how physiological, emotional, and psychological needs influence our action and decision-making, and how a Seller might appeal to those needs in a homebuyer in order to facilitate a sale. I followed it with a piece exploring how Buyers - whether consciously or subconsciously - manifest fulflilling these needs in their quest for shelter. For those navigating the complexity of housing and shelter, Maslow’s Hierarchy Of Needs And Toronto Real Estate, For Sellers and Maslow’s Hierarchy Of Needs And Toronto Real Estate For Buyers are informative reads!
As a homebuyer on the search, when trying to reconcile the financial value of a property - with intangibles that could improve your quality of life - there is always a certain degree of compromise. In fact, we've discovered that regardless of whether your budget is $400,000 or $4,000,000, one never gets everything they desire. But how much you compromise - and on what points - is up to you. It’s how you prioritize these points that constitutes your own housing value matrix, which essentially sets up the parameters for your housing search.
For most Buyers, the housing search starts with price. In our popular Dear Urbaneer series, we recently posted I Need A Crash Course In First Time Home Buying that systematically outlines the nuts and bolts of beginning your property search, including all the closing costs (including those nasty double land transfer taxes) required for a purchase. For us, it all starts with securing a pre-approval from your lender confirming your maximum property budget. After all, you don't want to be viewing properties you can't afford.
Most prospective Buyers will start with their price point and see what they can get for their dollars in different locations based on their preferences. But as they roll up their sleeves and start looking at the details, it's at that point when other critical factors ultimately need to be reconciled: including the size of the dwelling, the specifics of the property's location (including the housing site and site influences), and the home’s condition. As you review properties, you'll begin establishing your own 'housing matrix' hierarchy that clarifies your needs, wants and dreams.
To start, the value of any property is always dependent on its - as the mantra goes - 'Location, Location, Location'. This includes its proximity to the centres of commerce, its accessibility to everyday amenities - including shops, public transit, schools and green space - along with the area's architectural continuity, and often a socio-economic and cultural cohesiveness. We address these factors and others that influence the quality of a housing location in Choosing A Winning Location.
One Price Point = Very Different Houses
Once you’ve established the top end of your budget (note, nearly everyone starts with a lower more 'ideal' budget which, in the City of Toronto, quickly evaporates once you've determined that demand is pushing everyone to leap to their top budget to secure the place which most closely matches their ideal), you set down to the business of estimating how much product you can get within your chosen price point. The short answer is that it depends on what you value most.
In the City of Toronto, you’re probably already aware that even something as singular as 'location' can have a enormous impact on a real estate price point; this realization often requires Buyers to refocus and rank their needs and wants. That way, they can better read the worth of a particular home, as it applies to them as individuals. Let's break it down. As you start with a prescribed budget, you'll see that different locations will have properties in similar price points. So what of these properties? You'll soon see that what often varies in the properties are their size, site factors and condition. For example, you could spend a considerable sum on a fully renovated, sprawling property that is located a considerable distance away from the downtown core. By the same token, that same sum could get you a rat-infested shack, but you’re sitting pretty in a premium centre-of-it-all location. Which would you choose? Maybe neither, given that they are drastic extremes that may not apply to your goals or ideals. However, the example is worth noting, as that's the reality of cities like Toronto: similarly-priced properties can represent polar opposite products, based on something as hard to quantify as location. This is especially true of coveted 'freehold' family residences in Toronto or Vancouver, where the scarcity of stock plays a huge role in the value matrix - enough to cause wild price inflation!
Let’s look at three influential factors in more detail - Size, Site and Condition - and how they might influence your property value matrix.
No question - size does matter, and the size of your home may be your very first item on your housing wish list. This includes housing type (condominium versus a freehold row versus a detached dwelling), it's actual square footage, the number of floors, down to how many bedrooms and washrooms it offers. You’ll also consider layout and timeline for your ownership tenure. Does the available space fit your needs for today and for the next several years to come? If the size doesn’t immediately fit your needs, is there room for modifications or an addition - and is there room in the budget to include these potential scenarios?
A compromise in your search may look something like this: You may need three bedrooms (but want four), accept a property with one bath (as long as there's the potential for a second), and want a family room (but will accept an unfinished basement as the essential 'need').
In short - how flexible are you about the physical size and structure of your home? And how will this influence your quality of life while you live there? While there are some limitations on a physical structure, there is opportunity both within the home and within your housing value matrix to match these factors together.
The physical location of your home is something that you can’t change, but it can be serious point of compromise - or not, depending on where this fits on your value matrix.
Do you value the pedestrian lifestyle, or are you willing to commute? We’ve talked about the pros and cons of this particular choice in What Are The Real Financial, Emotional And Health Costs Of Commuting?
Your desired neighbourhood and proximity to amenities will figure heavily in the quality of your life. After all, your life extends far beyond the actual walls of your home. Your compromise list for location may look something like this: You may identify needing a home within walking distance to the subway, with a slightly lesser priority (want) on proximity to shops or the school; you may covet green space nearby or quick access to the highway if you are commuting or traveling by car often.
The site of the home goes beyond the physical location within a neighbourhood. There are factors on the land that the home sits that will shape your experience too and will be reflected in your wish list. Do you want backyard space? How big? Maybe you really desire a garden, but ultimately dream of having a pool. Does the space match your vision in your mind’s eye? How about onsite parking? One car is necessary perhaps, but you think it would be great to have even more - two or three? Where does this sit on the wish list - and what will you trade out in the other factors to achieve your superior housing site?
Given the age of most of the housing stock in Toronto, renovations are commonplace. Furthermore, given the escalating prices of housing, it is more and more common for people to be buying fixer-uppers, because of budgetary constraints.
Realize that buying a fixer-upper over a turn-key ready home will not only shape the way that your home looks, it can heavily influence the way in which your life unfolds during your time as a property owner. We’ve touched on this in Move-In Ready Or Fixer Upper? What’s Your Housing Match? Some people relish the idea of being able to put their own stamp on a home, while for some the thought of enduring renovations is entirely too stressful (click here for past Dear urbaneer post: Help! We Want To Renovate And Keep Our Relationship Intact!) so they are willing to compromise on the other elements of their value matrix (i.e. size and location) to find the right housing fit.
Beyond renovations, home buyers must also consider the structural soundness of the home, and what the living conditions and financial implications could mean too. For example, you might require that the house be structurally stable inside and out and have minimal water management issues. You may also require most building components to be in fair shape. Houses are built to eventually become obsolete, so you’ll have to consider how much work and how much expense might be required for some or all of the building components - and how that will play out in your housing matrix. We address this in our essential read called Understanding The Six Essential Layers Of Property.
When searching for a dwelling to buy, this process of establishing your housing matrix will constantly evolve with checks and balances, until you eventually walk into 'the one'. This residence will not be perfect, but it will meet your needs, indulge some wants, and offer sufficient potential to manifest some of the domestic dreams embedded in your own concept of Home.
Have you considered what your housing value matrix looks like, and how you might be able to reconcile the factors of site, size and housing condition in order to reach your housing goals? In a competitive market like that in the city of Toronto, a detailed search strategy with support is your best bet to securing your dream home.
At urbaneer.com, our service includes guiding you on establishing - and reconciling - a constantly evolving housing matrix while you embark on your property education and search. When dwellings come to market that catch your attention, we review the opportunities and constraints of each property relative to its size, location and condition, and counsel you on value, ensuring you can make a rational educated decision when buying your next home.
May we be of assistance to you, or someone you love? If you're thinking about buying or selling, call us for a pressure-free consultation that will quickly put the realities of today’s housing market in perspective. Call us at 416-322-8000, and please know we're here to help!
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