August 2023 – The Evans Real Estate Group Blog

Outdated Sales Training and Why You’re not Finding The Right Home

Do you really want the best house for the best price?

Or do you just like how that sounds?

Does it not make sense that you CAN NOT DO WHAT EVERY OTHER BUYER is then doing?

Because if you are – then you’re just competing with them all.

I want you to have an UNFAIR advantage.

When I started in Real Estate 16 years ago, I learned my 3 basis value propositions would be a) my access to properties BEFORE they hit the market, b) my access to the best lenders in the industry, and c) my specialized knowledge that would help them get the best deal.

Problem was, a massive amount of other Realtors in my market could compete with that, so I had to find something that they couldn’t compete with.

After a decade of coaching, experimenting, writing hundreds if not thousands of deals – I stumbled upon the silver bullet during a slow market when there was no inventory.

What happened was that since there were no homes that matched what my Buyer was looking for, I took a few hours and EDUCATED my buyer not only as to how the process worked, but also how homes were being priced, what homes were listed for, what shape they were in, the dollar amount and HOW they were selling, and how offers could look on them.

I called the process Marketplace Education, and it proved to be the single largest advancement in my clients’ success. To make this even better, I’m more than happy to explain to you how I get this done, as I know in my experience as a Sales Trainer of many of the Top Teams in the City, that most won’t have the patience to do what I’m about to explain.

The process revolves around two key points a) property value and b) property acquisition.

To begin, property value is the process in which we will physically take you out to see homes in and around your desired parameters to help you get a better sense of what properties are worth. We go out WITHOUT the intention to buy a home, but rather with the intention to educate ourselves as to what a good/bad deal is, and what properties are looking like in the scope of what you’re looking for. This does many things, the least of which is putting you in a better position to make an informed decision when the time comes, and not simply take our word for it. How much more comfortable would you be if you KNEW what a property was worth, and what was a good/bad deal? That’s the major goal here.

Property Acquisition deals with HOW and HOW MUCH these properties are selling for. To begin, we will select a property and get a grasp of the value, the offer climate (holding offers/ how many days on market/ competing offers etc), and structure a MOCK offer to simulate what we would do in a real life scenario. This also does many things, the most valuable of which is make you comfortable with the process, but also making you familiar with the paperwork and getting an understanding of how successful our strategies would have been. This can save you from dramatically overpaying for or completely losing out on the perfect home.

So imagine…. all of this Marketplace Education is done, and now BOTH OF US are completely equipped to size up a good deal AND to act on it.

How do you think it goes when we see a home before anyone else and we are able to confidently and capably act on it?

It goes very well, that’s how.

And that’s also how our clients have been able to make sure they don’t overpay for a home, over expose themselves to risk, or worse – lose out on their dream home.

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Sure, it’s Relative – but be smart.

Sometimes people forget that when you are buying AND selling Real Estate – what you buy and sell for is all relative. For example, if you SELL for a lot of money, you’re also likely turning around and BUYING for a lot of money. On the contrary if you sell for LESS than you would have like, well – you’re likely going to buy for less than you would otherwise as well (that’s good).

So what’s the overall difference? Should people just NOT CARE about upsizing or downsizing and live their best lives in any house they want?

No – of course not.

What you SHOULD be doing as looking at the complete financial picture after all cash inflows, outflows and taxes are taken into account.

Here’s what I mean:

is the sale of your property going to be subject to income or capital gains tax? If so, how much?
What will your total payments look like? Mortgage, Property Taxes and Insurance?
What about utility or maintenance costs/fees? Are those much higher or lower?

What is your bank account and cash flow going to look like?

The other aspect to consider is what is your LIFE going to look like?

Will you be much happier? Be busy with repairs or have more free time? Doing what you love or hate??

All of those matter a great deal.

When you look at the picture ENTIRELY like this, you can sometimes see that buying or selling Real Estate can either make total sense or no sense where you may not have thought otherwise before.

Personal, Thought Process - THOUGHT PROVOKING

Leading With Your Heart

When you lead your way through life with your heart, you experience it on the highest of highs, and the lowest of lows.

Through the highs that love offers, you can feel connected to a higher power – something indescribable that can only be understood through experience. If you’re lucky, you’ll feel this at least one time while you’re here on Earth.

Through the lows that love offers, you can feel so alone and betrayed, confused and broken. The world can be a dark and merciless place during these times.

Without the highs and lows – what would life be?

Shallow? Numb? Regrettable?

The polarization of the feelings love offers can often make your feelings towards how you live your life go from one extreme to the other.

Do you commit your life to it and ride the highs, and surrender to the pain of the inevitable lows?

I think so.

I think a life without it wouldn’t be one worth living.

On your path it’s important to remember that you often get what you focus on, so make sure you focus on the good.

For every death, there is a new life.

For every heartbreak, there is a new story being written.

For every end – a new beginning.

Take in and appreciate the finer things life has to have, keep a strong focus on the good – and lead with your heart.

See you on the Path

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Ensuring Your Kids Can Afford To Buy Real Estate.

I just had a meeting with a good friend, and she was expressing how home prices rise so much over time that she has no idea how her kids are going to be able to afford a home in 10 years.

I get it.

The average price will be well over a million by then, and wages won’t increase as much in the mean time. For context, since 1998 wages have gone up 23% (it’s August 2023 as I write this), and the average house price in Ottawa has risen 350% in the same time period.

In other words – affordability as a ratio of income:house value has eroded tremendously.

So what’s the solution?

I know one… buy something for them NOW.

I have a handful of clients who have bought small investment properties over the years and have leveraged them into ’empires to be’ for their kids.

Here’s a case study:

Client/ good friend of mine bought a Triplex in a small town for 178k 9.5 years ago. The property just barely cash flowed and they slowly fixed it up over the years.

5 years ago they refinanced it and pulled out 90k and put 20% down on a SIXPLEX in another small town for 425k.

Their oldest daughter was 9 when they started.

Guess what phone call I got a few days ago?

Their mortgage on the 6plex is due in 6 months and they want to pull out 20% of the value of their NEXT multi unit and have their daughter (now 18) live in one of the units!

They will have over 10 units in as many years, have over 800k in equity in the 2 properties (will have about a million in the 3), have a home for their oldest child and have set them up for success.

The cost? They pulled out 40k when their mortgage on their principle redidence was due – and made a move.

10 units, 10 years, 1M equity.

They had the foresight to make this small move a decade ago, and the only regret they have is they didn’t start 10 years sooner.

If you’re curious to know how you can get started on the same path – just send me a message and ask. There are so many ways to rearrange mortgage debt, qualify for more, get creative private financing, or even build a plan that you can’t afford NOT to look into it.

In my opinion of course.

Hope to hear from you.

Best

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Evaluating Semis and a 6Plex

Note: Addresses have been left out. This communication is strictly for educational purposes

Here are the answers:

1. Value of Semi’s: $1,050,000

2. Value of Sixplex: $3,100,000

Note: I’m trying to be SHARP with values to set expectations. It’s possible to get a little more depending on the quality of finishes, exact state of the market when these projects would hit the market, and the active comparables or update values on sold comparables at that time.

Here is the work (if you want to see it)(all supporting material attached)

Semi Detached

1. Sold Comparables

Comparable 1 is 2100sf. 2021 Build in Glabar Park Sold July 14th 2023. 442/sf so comparable @ $1,139M, however that’s in Glabar Park ( less 100k), and without in-law suite (add 50k) , Comparable @ $1,089M

Comparable 2. 3 Bed Semi, 2019 Build, unknown SF and in Queensway Terrace North(QTR) (South of Lincoln Fields) Sold June 2023 for 950K. Fisher is newer w/ in law suite ( Add 100K), Comparable @ $1,050M

Comparable 3. 3 bed semi w/in law suite, 2022 Build in Queensway Terrace North (QTR), Sold Sept 2022 for $1,050M. Less approx 25K for time difference (stats show 2.5% decrease). However add back 25K for newer build, comparable @ approx $1,050M. Best Comparable

2. Active Listings

Comparables 4 and 5. New Semis w/in law suites, in QTR. No SF disclosed, likely haven’t sold because of style. Listed at 1M. Worth??

Comparable 6. Exact same as the sale at Comparable 3which sold for $1,050M. Listed at $1,074M.

Note: Subject assumed to have rooftop balcony as pre original plans, however the value there is offset by the main street (others were on quieter streets). Also, the ‘Buyer’ I spoke to had the opinion that a semi here wouldn’t sell for over 1M (for whatever that’s worth – not much).

SIXPLEX

1. CBRE 2023 Q2 Reports for Multifamily Low Rise, Class A from 4.1 to 4.25 Cap. Assuming 20% TOE, 180K GOI becomes 144K NOI. 4.25 Cap is 3.51M, 4.1 Cap is 3.388M. Personally I always find these reports a little too aggressive for the market compared to the comparables – as seen below.

2. Sold Comparable @27 Monk St. Honestly? A steal of a deal. 7 units in a GREAT location (Glebe – 100m from TD Place!) for 3.4M, TOE 13.4% ADD 5% for Management = 18.4%. Adjusted NOI @ 162,057K. W/ SP@ 3.4M, Cap = 4.76. This is the Glebe, so if Cap was 5% on Fisher w/projected income of 144K = 2.88M. At list price of 3.75M Monk would have been a 4.3 cap, which would comp us at 3.348M, but it didn’t… but again – this place sold for a steal.

3. By the reports, and by what Monk SHOULD have sold for, a 6 unit on Fisher should be worth approximately 3.34M, however the actual Sale Price of Monk being 3.4M for 7 units in the Glebe puts a BIG damper on those plans. 3M seems more appropriate. This property sold in Nov 2022, so I’m hoping the rising interest rates/ cost of borrowing have caused upward pressure on rents – meaning you can get the 2500/month or maybe a little more on the 2 bed units and carry the value over 3M. Perhaps I can add 100K for presumed parking @ Fisher and bump the value to 3.1M.

P.S. This is what a CBRE Cap Rate Report looks like. We use them to apply Cap Rates to different types of investments.

Real Estate - ANALYSIS

Pricing a Home

The Concept of Market Value

Most sellers have a unique way of establishing value – and that is quite simply by using their own Subjective Value. In other words, what the property is worth to them. In most circumstances, this is a great way to value property, as decision making can often be made based on the worth of options to the decision maker. You’ll hear “That’s not worth it to me”, or “It’s worth more to me than that”. The key here is what something is worth to THEM. While that’s great, when you’re looking to price a home, we’re looking for Market Value.

Market Value is quite simply ‘what a buyer is willing to pay for a home’. As much as beauty is in the eye of the beholder, Market Value is in the eye of the Buyer.

This is opposed to other means of determining value such as (but not limited to): Refinance Value (done by an Appraiser who has never walked through a property with a buyer, but rather a clip board, and who’s Appraisals state in the ‘Assumptions and Limiting Conditions’ section that Realtors have more experience pricing homes and they are the experts), Insurable Value (which is cost to rebuild), Purchase + Appreciation Value (Bought for 500K+100K renovations+5% per year appreciation over 8 years) or any other type of Subjective Value (Neighbour thinks/says, Dad thinks/says, Coworker thinks/says).

Again, while these are all valid ways to value a home, what we are interested in is the value that will allow us to SELL this property for the MOST amount of money, and that value is Market Value.

In order to determine Market Value, we use what is called the Direct Comparison Approach, and that is taking the best comparables to the subject property, identifying the differences between them, determining the value of those differences in today’s market, and then accounting for any time difference between the properties. Not only does one need access to information to get this done, but they also need recent and comprehensive experience with both Buyers and Sellers to assign the appropriate values to those differences and determine the proper ‘adjustments’ in pricing.

In order to determine what Buyers are exactly willing to pay for a home, we must not only consider value from their perspective, but we ALSO have to take into consideration their recent experiences of both buyers and sellers to anticipate the property movement of both the list and sale price – and that is where 3D pricing comes into play. In this book, we will not be going through exercises or examples of specific adjustments in value, but rather the concepts and theory behind it.

The Concept of 3D Pricing

3D pricing is a term that I recently coined, which essentially refers to the ‘three dimensions’ of pricing, or the three different considerations that have to be observed when selecting the right price to list a home. I’ve identified those dimensions as follows:

The First Dimension: Median Pricing

This is not a revolutionary concept; however, while many of the concepts I’ll explore are not revolutionary – they are much like common sense, and not too common 😊

Looking at the Median Price refers to looking at where the bulk of the data is as opposed to taking a straight average. For example, if we have 3 sales at 500K and one at 350K, the three homes at 500 should almost be considered exclusively, and the outlier at 350 would not get much consideration at all. Using the average here wouldn’t paint the proper picture of value.

The Second Dimension: Weighted Pricing

This refers to giving more consideration to the best comparables, which begs the question – what’s a good comparable?

A good comparable is one that is AS SIMILAR to the subject property and that has sold AS RECENTLY as possible. The reason for this is that the more differences between the comparables and the subject, the more adjustments in value have to be made, and the more room for error is possible. We’d like to keep things as straight forward as possible. In the same vein, the further back the comparable has sold, the more differences the market has experienced since then. Whether it be supply/demand, outside contributing factors or simply buyer preferences – there are many factors that can change over time and impact pricing. If a comparable sold last week – perfect. If it sold last year, now you have to consider everything that happened from then until now and price out those changes.

The Third Dimension: Pricing Climate

The best way to predict a buyers’ behaviour is to look at their past behaviour. It is very important to put yourself in the shoes of a buyer for your home, and ask yourself how many homes like this have been on the market, if they’ve had to compete for them or not, what the difference between list price and sale price has been and how many days they’ve been on the market. The reason this is important is because the brain works by identifying patters and relying on them for decision making (which is why you don’t study every door you walk up to and ask yourself if you’re going to open a portal to another universe or perhaps fall down into a bottomless pit on the other side, but rather you’ve gone through enough doors to know that it’s just another room on the other side of it, and it’s probably safe to go through it), and that pattern will reveal to us how to price a home to take advantage of a buyers expectations. For example, let’s say there have been 4 recent sales for homes like yours, and they’ve all been priced around 599 and sold for 750 in 5 days. If you tell yourself your house is worth about 750 and price it as such, buyers will know that houses like yours have been selling for 150K over asking, and you must want 900 for yours – which doesn’t make sense to them, and rightfully so.

The Science and Art of Pricing a Home

There are many situations in which pricing a home is more straightforward than not, but sometimes it is not so straightforward.

For example, pricing a townhome that has plenty of great comparables is a lot different than pricing out an “Age Unknown” farmhouse with 85 acres (50 of which are leased to a farmer), 4 outbuildings, a rubble foundation, half of the major systems updated and a geo thermal heating system. In a situation like this, relativity to other sales or homes that a buyer would also consider has to be considered, experience with these types of buyers and plenty of site visits (drive by’s or granted tours of homes). This is much more of an ART, and not a subject we will explore in depth.

When you look at all 3 dimensions of pricing as I’ve outlined it here, you’ll be able to see where the price range likely lies, but also where to price your home in order to end up in the higher part of that range.

In the following sections we’ll explore how to refine the home itself to ensure the absolute top of that range is where you end up.

Real Estate Sales

Our Client Passed Away

We were supposed to help her sell her home in a few months when we got the news. Nicole was introduced to us through another client months beforehand, and unfortunately she was in very poor health and was looking to move in with family members full time.

I’ll never forget coming in the office and having one if my partners tell me that she was gone- passed away peacefully overnight. We all know that eerie silence of not knowing what to say.

In addition, our original contact told us that we needed to proceed with the sale and pick things off where they left off. Challenge was – Nicole was alone here and we had none of the information we needed on her home. NO ONE was around to help, and we essentially got carte-blanche to set things up ourselves.

We spent the next month being detectives working ith lawyers, property managers, executors, neighbours and in the home itself sifting and sorting through documents, finding and organizing manuals and measuring and labeling rooms and items.

Finally, we prepped and cleaned the unit and just finished the marketing and launched the listing a week ago.

It’s beautiful 😍

Sometimes our process requires a very high level of care and detail – and this was certainly one of those times.