When I was in real estate school 20+ years ago we spent a lot of time on the concept of Fair Market Value. The definition we were given was something along the lines of “the highest price a buyer will pay and the lowest price a seller will accept when neither is under any undue pressure and the property has been exposed to the market for a reasonable period of time”. You can already see the problems with this definition in light of today’s market conditions, can’t you?

The market was different back then. Buyers weren’t usually in a hurry.  There would typically be a number of scattered showings over approximately 60 days after a home was listed and then some buyer would make an offer. The offering price was almost always less than the list price. The buyer and seller would negotiate back and forth until they got to a point where the buyer said “I won’t pay a penny more” or the seller said “I won’t take a penny less”. If they agreed on that price, they had a deal. Neither of them was particularly happy with the deal, but that was a sign the deal was fair for both sides. Or, alternatively, that the property had sold for its Fair Market Value.

It was common for buyers and sellers in those days to ask their agents “What’s the Fair Market Value of this property?” before they put their homes on the market or before they made an offer. They asked this so they would know the difference between a good deal and a bad deal. Banks also wanted to know the Fair Market Value to determine how much they should lend.

But that was then and this is now. The market was more balanced then. Buyers and sellers usually had equal bargaining power. That’s not the case in central Toronto these days. Sellers are in the driver’s seat. They get to call the shots. Do you think most buyers feel “no undue pressure” when they make their offers together with 5 other buyers? How about the sellers? What kind of pressure do you think they’re feeling when they get to choose from multiple offers within a week of putting their homes on the market? Granted, this doesn’t happen with every single home in central Toronto, but it’s happening often enough that the old concept of Fair Market Value just doesn’t apply.

Instead of asking your Realtor “What’s the Fair Market Value of this property?” there are better questions to ask if you’re looking for guidance when it comes time to choose a list price if you’re selling or a price to offer if you’re buying. How about these:

• How much can you see this property selling for if there’s only one offer?
• What are the chances of there being a bidding war?
• How much do you think it’ll sell for in a bidding war?
• What’s it going to take to win a bidding war OR What’s the highest price you can see someone offering in a bidding war?

These questions aren’t designed to determine an approximation of a property’s Fair Market Value as much as to approximate how much it’ll sell for. And there’s really no point asking your Realtor these questions before he/she has seen the property because “The Feel” plays such an important role in approximating the eventual sale price.

No Realtor is going to be able to give you exact answers to these questions, but a Realtor who knows the market in which you’re looking, is familiar with the properties that have recently sold (the “comparables”) and has a feel for “The Feel” should be able to give you some guidance.

Real estate is like anything else. You need the right information to make the right decisions and you need to ask the right questions to get the right information. Hopefully these questions will help you.

If you know anyone who’s interested in learning how the market works and who’d like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.