How do real estate agents and appraisers decide how much a house is worth? While every REALTOR approaches a home’s valuation slightly differently, here’s the lowdown on how a Comparative Market Analysis (CMA) is performed and the factors that are taken into consideration.

If you’re a Seller: it’s important to know how your agent is appraising your home and how Buyers will decide what your house is worth.

If you’re a Buyer: it’s important to know how the Seller has arrived at their asking price. If you’re in a bidding war, it’s even more important to understand how market value is determined so that you can put your best foot forward, without paying too much.

The Comparative Market Analysis

Step 1: Choose the best comparable sales.

The first step in deciding how much a home is worth is choosing nearby sold properties to compare the house to. While Sellers may be tempted to cherry-pick the comparable sales that support the highest price (and Buyers are tempted to cherry-pick the comparables that support the lowest price), the best comparables for a home are:

  • Nearest in location (same street or nearby similar streets)
  • Most recently sold (in the last weeks or months)
  • Closest in size, style and condition

Step 2: Make adjustments to account for the differences.

In Toronto, it’s rare that two houses are identical, so the next step in determining a home’s value is making adjustments – adding and subtracting $$ to account for how the homes differ.

When comparing houses and making adjustments for a CMA, there are many factors to consider, including:

  • Type of house – detached houses are the most valuable, followed by semi-detached and row houses.
  • Number or bedrooms – most houses in Toronto have three bedrooms – there’s a penalty for 2-bedroom houses and a bonus for 4+ bedroom houses
  • Number of bathrooms – a two bathroom home is more valuable than one bathroom home
  • Location, including positive and negative influences – a home backing onto a cemetery won’t sell for as much as the neighbour across the street that backs onto a ravine
  • Lot size – most of the price we pay for a house in Toronto is for the land – the houses we live in aren’t actually that expensive to build
  • Square footage/size
  • Layout – Open layouts are more valuable these days than houses with a lot of closed off rooms. The flow of the space is important too.
  • Parking – What’s the penalty for having no parking? How much value does having a garage add? Or two spots vs one? Driveway vs laneway parking?
  • Outdoor space – How do the outdoor spaces compare? It’s not just size that matters – style, design, prior maintenance, views, the neighbours – a lot of factors are considered.
  • School district – Homes in superior school districts sell for more, and in Toronto, it’s entirely possible that homes on opposite sides of  the streets are in different districts. 
  • Condition of the home – Has the house been well maintained? Are the floors and carpets in good condition? Are the unsexy things and mechanicals in good condition – electrical, plumbing, furnace, A/C,  roof?
  • Finishes – Comparing finishes is very subjective. How do the finishes compare in style, quality and recency of renovation? How would an average Buyer see the finishes? If a Seller spent $50,000 personalizing a home, how much will the average Buyer value those renos? It’s important not to put too much emphasis on personal taste but instead look at what an average Buyer would do; so while you might hate the kitchen in the house you’re thinking of buying and want to tear it out, if the average Buyer wouldn’t do that, the market value of the house wouldn’t be affected in the same way as an unusable bathroom that  everybody would have to replace.
  • Basement – What’s the difference in price for a house with a finished basement vs a house with an unfinished basement? How does that value change if the unfinished basement can be finished?
  • Income potential – How much value does a basement apartment add? How much can it be rented for? How much more valuable is a legal apartment vs an illegal one?
  • Inclusions and exclusions – if a home’s sale price includes appliances and another does not, an adjustment needs to be made

When looking at a past sale to help determine the price of a house, other factors influence the price too:

  • The time of year it was sold – was it sold in a hot market are in the depths of the Christmas season?
  • Whether the home was staged – staging can add tens of thousands of dollars to the sale price
  • The quality of the photos – houses with bad flip-phone photos sell for less.
  • How the house was marketed – if there are tons of mistakes in the MLS listing and no marketing efforts, that impacts value
  • How easily the home could be seen – could potential Buyers easily book a showing or did they have to see it between 2-4 on Mondays and Wednesdays? o
  • Motivation – Sometimes, a house sells unnaturally low than because the Sellers were desperate and just wanted out. There are some tell-tale signs that REALTORS use to see if a Seller was particularly motivated or unmotivated, so that can help explain some of the comparable sales too.

Step 3: Validate the home’s value.

While a lot of agents skip this final validation step, we like to estimate a house’s value in a few other ways and look for consistencies, trends and anomalies across the values.

When valuing a home at the BREL team, we:

  • Perform statistical analysis on the house since it was purchased. We look at average prices when it was last purchased and average home prices today. If nothing was renovated since it was purchased, how much would it be worth today if it appreciated in value along with the rest of the market?  
  • Perform a neighbourhood analysis – On average, what do similar homes sell for in the neighbourhood? In the last year, what’s the average price of a 3-bedroom detached house in the neighbourhood irrespective of adjustments?
  • Perform a competitive analysis  – What’s happening in the neighbourhood right now? Are houses selling in multiple offers in 6 days or are they on the market for 30 days? How does the demand for the area compare with the supply?

There are also some factors that are NOT important in determining market value:

  • The price the Seller needs to get to break even.
  • The Buyer’s budget or particular personal tastes
  • How much the Seller spent on renovations
  • The asking price on the MLS listing

So how much is your house worth?

Determining a home’s value in Toronto is a skill that comes with experience; there isn’t a nice little spreadsheet that agents can reference that calculates everything. We’re starting to see automated home valuation tools in Canada that attempt to reduce a CMA to an algorithm – though these are much more useful as a Validation tool than an actual replacement of a proper valuation.

Most importantly: All the valuations, spreadsheets and data won’t matter if a Buyer doesn’t want to pay $X for a house. Real market value is always determined by how much a Buyer will pay for a house.


Thinking of buying or selling a condo? Determining how much a condo is worth is quite different than valuing a house because condos are often very similar (if not identical) to each other. Click here to understand how a condo’s value is determined.

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