Whether you’re buying or selling, the value of a property in Ontario is a key indicator. Private lenders base their streamlined applications on the property’s equity, including the appraised market value.
Understanding what goes into pricing a property is essential. Here are five key factors that influence property value in Ontario.
Location
A property’s location is essential in different ways when determining its value. A property near amenities usually has a higher asking price and value.
- A home in a neighbourhood near a school is considered more desirable and stable—families with children or people planning on having them prioritize this feature. One of the biggest draws for these people is high-quality public schools that emphasize academics and extracurricular programs.
- Other amenities like public transportation and shopping come into play, too. Properties in suburban areas have a high demand rate when they have access to light rail and subway systems. Making commuting to work in a downtown core easier drives a property value. The same can be said for bus and rapid transit systems. People who commute want to satisfy their daily shopping needs with supermarkets and grocery stores in their neighbourhood. Nearby retail centers and shopping malls are other features that drive up the numbers.
Commuter trains are another bonus because a home near one of these rail lines can appreciate quickly. The same can be said for homes located in neighbourhoods with local markets.
These are essential considerations for someone looking to get a private loan. Private lenders base approvals on the equity you’ve built up and the appraised market value of a property. All of these factors can affect the value of your home when you get an appraisal. This is especially important if you want to do more renovations or consolidate high-interest rate payments into one through a private second mortgage.
Market Trends
How much a home is worth is essential to those who already have one and those who want to buy a place of their own. Once you have the keys, if you need to make emergency repairs to the plumbing or a leaking roof, a private loan has a streamlined application process. It’s worth considering one if you want to make an immediate repair.
Homeowners need to monitor market trends. Upswings and downturns affect the appraised market value. Here’s how these cycles affect a private loan.
As the name suggests, a buyer’s market occurs when there are more homes on the market than buyers. This results in a lower home price, and a home can sit on the market longer.
When demand exceeds supply in the same market, it’s called a seller’s market. Home prices go up, and there can be competitive bidding.
Private lenders are more confident when they offer things like a private second mortgage in a seller’s market. The reason is simple: Property values are rising. A private loan is still a good idea in a buyer’s market, even though home prices are declining. Something like a second mortgage can supply interest-only payments and a financial bridge for people with bad credit.
Having bad credit can otherwise be a sticking point when you’re applying for a loan through a bank.
Remember, first impressions can also make a big difference when an appraiser is pricing a property in Ontario.
Condition and Age of the Property
That’s why considering the condition often starts with a well-maintained exterior and professional landscaping. Neglected properties negatively affect market values.
Newer homes generally have better resale value than older ones. However, the older the structure, the more likely it is to need upgrades to features like plumbing and installation to meet Ontario building codes. Older homes also have outdated HVAC systems and higher utility costs, affecting property value.
Properties in rural areas also have different Loan-to-Value (LTV) ratio requirements. This LTV is the primary factor private lenders use. It’s the percentage of the property’s value that’s owed in mortgages and for urban properties, it’s up to 75% and for rural properties, it’s up to 65%.
It’s important to understand that most rural requests are now outright rejected for various reasons. Private lenders won’t lend to properties that aren’t winterized or are considered farm properties. They won’t lend to rural addresses for a few other reasons.
Here’s a scenario of how the process works for both.
The home has been appraised and has a market value of a million dollars. The owner has a $500,000 first mortgage. If they request a $250,000 second mortgage, the LTV for that requested mortgage can be up to 75% of the property’s value.
LTV = Total Loan Amounts / Appraised Value of the Property.
Size and Layout
Size matters when it comes to property value. In an urban area, the bigger the lot, the more valuable it is.
- Some potential buyers want more space between their neighbours and more privacy. Even the potential for a garden in the backyard can add to the property’s value.
- There is always the possibility of future expansion with a more considerable lot. Depending on the municipality’s requirements, you can add an extension or a pool.
The layout makes a difference in the property value as well.
- Modern buyers are willing to pay more for an open-concept kitchen and living areas.
- A finished basement with a separate entrance is appealing. People who want rental income or several generations to live in the same space prioritize these features.
Private lenders consider the size and layout because these factors affect the property’s value, market value, and equity, which determine the LTV.
Local Amenities and Infrastructure
Local amenities and infrastructure go hand in hand with location. In addition to the ones already mentioned, access to recreational centers and parks and trails is essential for property value.
Access to emergency services, clinics and hospitals is another significant factor in determining the price of a property. Walkability is another bonus factor for a home. An address close to restaurants and supermarkets will have a more significant demand. The same can be said for homes near transit stations and schools.
