Equity Valuation

[Fortuneinvesting]

Hey guys, thanks for letting me read the forums! Got a quick Q:



When you guys calculate equity are you using the latest appraised
value or the purchase price?
Also what percent do you generally use for year value increase?
I saw from my mortgage broker that he used 3.5%, I think that
is about fair.
Lately I`ve been using purchase price for my base year because I feel
that the appraisal value (in Calg and Airdrie they are from last June)
is a bit more than this year.


Any arguments if I use the list price as market value, and whatever
you purchase for below that is "instant equity"?
Cheers

 

[GarthChapman]

Use the actual current market value. Next to a sale and appraisal is the best measure of market value. Using any value other than the actual true current market value will create incorrect and misleading equity figures.

The list price may or may not reflect the true market value. It is merely the seller`s starting point in the negotiation of the sale price of the property.

 

[Fortuneinvesting]

QUOTE (GarthChapman @ Apr 7 2009, 09:01 PM) Use the actual current market value. Next to a sale and appraisal is the best measure of market value. Using any value other than the actual true current market value will create incorrect and misleading equity figures.

The list price may or may not reflect the true market value. It is merely the seller`s starting point in the negotiation of the sale price of the property.

Thank you, Sir. So the current market value is the price it was purchased for correct?

 

[RobMacdonald]

Not necessarily. The current market value is what an average market would pay for the property. It is possible that the purchase price that you have under contract may be more than what the appraisal comes in at. And therefore, the bank will use the lesser of the 2 values to determine the value of the property and subsequently the mortgage amount.

You can use the purchase price, as long as the price is supported by a market appraisal.

 

[Fortuneinvesting]

QUOTE (RobMacdonaldCMT @ Apr 8 2009, 12:54 AM) Not necessarily. The current market value is what an average market would pay for the property. It is possible that the purchase price that you have under contract may be more than what the appraisal comes in at. And therefore, the bank will use the lesser of the 2 values to determine the value of the property and subsequently the mortgage amount.

You can use the purchase price, as long as the price is supported by a market appraisal.

Thank you Rob, that has cleared it up for me. When purchasing my place, you usually have to get the property appraised, So i guess I go from there and since the bank only offers the mortgage on the lower of the two values the amount over the appraisal would be a downpayment (I would always avoid this situation however, as you are losing equity immediately)

 

[GarthChapman]

QUOTE (Fortuneinvesting @ Apr 7 2009, 08:53 PM) Thank you, Sir. So the current market value is the price it was purchased for correct?

Rob is rght in his reply to this. I would add this- if you purchased it a year ago the value may have changed. Normally up, but this year and last, down. So the market value is a moving target. We always re-value all our properties once each year (we are able to do this as our son is a Realtor and is a very reliable evaluator).

 

[Fortuneinvesting]

QUOTE (GarthChapman @ Apr 8 2009, 10:11 AM) Rob is rght in his reply to this. I would add this- if you purchased it a year ago the value may have changed. Normally up, but this year and last, down. So the market value is a moving target. We always re-value all our properties once each year (we are able to do this as our son is a Realtor and is a very reliable evaluator).

Thanks Garth, Is your son in Calgary? What would be the cost to do this to other properties by him?

Thanks

 

[Anonymous]

QUOTE (Fortuneinvesting @ Apr 7 2009, 10:16 PM) Also what percent do you generally use for year value increase?
I saw from my mortgage broker that he used 3.5%, I think that
is about fair.


This number will change each year... ReMax, REIN, CMHC, and a few others will post a forecast. If you are looking for historical, if you have a good relationship with your agent, it`s very easy for them to pull 12 month price changes. Ensure its for your zone, and asset class.

good luck

 

[CalvinPeters]

just form a decent relationship with a realtor that knows your target area well...they should be able to pull up the last 2-3 solds and give you a price per square foot to work with that is almost as acurate as an appraisal. (thats what the appraisal does anyways) I would not hesitate to quote "instant equity" of anything below that value. This is a sales game after all. cheers.

 

[Thomas Beyer]

you use a fair market value based on comparables that SOLD lately ..

could be higher or lower than assessed value ..

Average annual "increase" per year: usually about 5% or so annually .. but lately -10% .. next year 0 .. so "average" don`t matter !

People have drowned in rivers 2 ft deep on average !

 

[DOZAH]

Well said Thomas.

What I do is get my realtor to pull up comps (sold comps... not for sale comps).
By this you should get a basic idea of where you stand in your micro market.

Good Luck

 

[Fortuneinvesting]

QUOTE (DOZAH @ Apr 8 2009, 11:22 PM) Well said Thomas.

What I do is get my realtor to pull up comps (sold comps... not for sale comps).
By this you should get a basic idea of where you stand in your micro market.

Good Luck

Thanks for the help guys.

 

[Fortuneinvesting]

QUOTE (thomasbeyer2000 @ Apr 8 2009, 11:00 PM) you use a fair market value based on comparables that SOLD lately ..

could be higher or lower than assessed value ..

Average annual "increase" per year: usually about 5% or so annually .. but lately -10% .. next year 0 .. so "average" don`t matter !

People have drowned in rivers 2 ft deep on average !

Should be alright it I get it at -10% then hey! And with mortgage rate for 5 years at 3.85%... Looking pretty