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Comparative Market Analysis

Choosing the correct asking price is one of the most critical parts of selling your home. It must be positioned correctly to attract the most qualified buyers in the market.

This requires a look at what similar homes are currently selling for in order to estimate the market value of your property. What you need to understand first is that the market sets the value. This is determined by the highest price a buyer is willing to pay for the property.

This information is put together in a report called a Comparative Market Analysis (CMA). This may also be referred to as the “Broker Price Opinion.”

Understanding the micro-market is incredibly important for the value of your property. This understanding takes a careful examination of the data, similar properties and current economic trends. The secret way to compare your house to others in the market and estimate the price is to look at a professional comparative market analysis.

What is a Comparative Market Analysis?

A Comparative Market Analysis (CMA) is a data analysis report of the current and past real estate market within a few miles from the given property. A licensed real estate broker can prepare a professional CMA at no-cost or you can hire a professional appraiser for a more in-depth analysis

It’s customary for a real estate broker to offer their services and a free market analysis. It’s also common for homeowners to do extensive research on the Internet to gather the information needed for an estimated home valuation. A CMA gives you the information on similar sold, pending sale and currently available properties nearby.

A market analysis gives you information about houses similar to yours in size, amenities, location and bedrooms that are either active on the market, currently under contract, expired or sold within six months.

Information Contained within a Market Analysis:

• Sales Prices
• Building Square Footage
• Lot Square Footage
• Amenities
• Location
• Average Price per Square Foot
• Bedrooms
• Bathrooms
• Days on the Market
• Original List Price
• School Districts
• Utilities
• Condition
• Pipes
• Roof
• Electrical
• Security
• Noise
• Parking
• Landscaping
• Pools
• Spas
• Bonus Rooms
• Walkability Score
• Year Built

A good CMA can tell you what homes like yours are selling for, how long the comparable homes are sitting on the market and what their sale prices were compared to the list prices (the difference between what people actually received for the property compared to what they asked).

It’s also important to pay attention to the prices of pending rather than closed sales. The reason to do so is because they’re the most recent transactions and currently in escrow. Pending transaction likely close within 60 days and could be sold transactions applicable to a appraisal during your sale.

Also, reviewing any expired listings will give you a sense of why some houses sold and why others did not. Notice the differences in price per square foot, list price in comparison to sold homes and what the images and copywriting were like to avoid making the same mistakes.

Create Your Own Comparative Market Analysis

Whether you’re selling your home without an agent, or simply want to do some research on your own, here are some ways to get comparative pricing information.

Find homes in your areas that have sold within the past six months. Restrict the search to within 1 mile of your home, expanding that radius only if you can’t find comparable homes, also called comps, close by.

You will need at least three comps and can find them on real estate websites such as zillow.com and realtor.com. The comps should be homes that are close to the same age and size of your home.

Then search for comps that are currently listed for sale or in escrow (pending, looking for backup.) Again, you need at least three comps for each if possible.

Tip: Print the comparable sales information so you can refer to it later.

Choose one home among your comparable that is definitely worth more than your home. Perhaps it has amenities that yours doesn’t, such as a gourmet kitchen or a view. This comp will be your ceiling; your home is definitely not worth more than this one.

Now choose a home that is similar in size and location but worth less than yours. Perhaps it is located on a busy street or backs up to one and yours doesn’t. Compare the age and size of the sold homes to yours. A smaller home and an older home will generally be worth less than yours.

View the exterior of the sold homes and the neighborhoods in which they are located. Homes on busy streets or homes that back up to busy streets generally have lower values than those that don’t. Homes with views are worth more than those without. Make notes on the printout of each home describing anything location-related that might affect the value of the homes.

Check to see if the homes have been remodeled or updated as that could bring their value up a bit. If the homes are newer than yours they will be worth a bit more. Read the descriptions of the homes to see how they stack up against your property.

You may need to view the listed homes in person to see if there is a reason for a drastically different price. Some agents fail to list all features of a home in their descriptions.

Now you have a price range and your home value falls between these two. This will give you a good idea of the value compared to actual sold properties.

Next, let’s take a look at the active comps. These are homes that are similar to yours and currently listed for sale.

Compare the estimated value that you have determined for your home against these comps. If the comps are priced significantly higher or lower than yours, you will need to investigate a little deeper. Perhaps the market has changed or you have missed something when estimating the value of your home. Look at how long the homes for sale have been on the market. The longer a home sits on the market, the better the indication that the home is overpriced.

Also calculate and look at the key market indicators that we discussed earlier in this chapter. Compare the average price per square foot and price-to-rent ratio of both your property and the comparable properties.

After this information is analyzed you will have a clearer understanding of the current market and will be able to estimate the fair market value for your property.

Real Estate Market Analysis Resources

To simplify the valuation process, there are websites that provide a free comparative market analysis at the click of a button. You will be able to review the list of sold homes and factor that into your analysis or you can contact a real estate agent and ask them to construct a report for you.

Although these tools can give you reasonably accurate data in regards to recent sales, it does not take into effect the current condition of your property. We highly recommend having at least one professional real estate broker visit your property to give you a broker price opinion.

An additional consideration is to have a licensed appraiser perform an appraisal on the current value of your home. Mind you, this is based on a limited set of factors and doesn’t necessarily factor in the other variables you need to consider (i.e. the absorption rate, how long other comparable properties have been on the market, which homes have recently sold). Furthermore, appraisers will cost you money.

We offer a free service for you to receive a market analysis for your property on a bi-weekly or monthly basis. This generates a report that is sent directly to your email that shows the price average and average days on the market. With our report and additional information you have gathered, you should be able to calculate a value closer to what an appraiser or real estate agent would give you.

California New Construction Warranty

New homes are desireable for a number of reasons from their design to the thought that they will come with less maintenance concerns. Luckily for a buyer, Builders in California are requred by law to provide for "limited" new construction warranties.

Some builders provide express new construction warranties to address buyers’ concerns.  However, in the event that the builder does not provide a warranty, California law provides for implied new construction warranties. These warranties are contained in California Civil Code 896, et seq., also known as the “Right to Repair Act,” and are described below.

One Year Warranties

•  “Fit and finish” of cabinets, mirrors, flooring, interior and exterior walls, countertops, paint finishes, and trim. California Civil Code section 900.
•  “Manufactured products”, i.e. any product that is completely manufactured offsite, including efrigerators, stoves, etc., as well as HVAC units and fixtures. California Civil Code section 896(g)(3).
•  Compliance with “interunit noise transmission standards set by the applicable government building codes, ordinances, or regulations in effect at the time of the original construction”, as applicable to attached structures. California Civil Code section 896(g)(6).
•  Irrigation, drainage, and landscaping systems. California Civil Code sections 896(g)(7) and 896(g)(12).

Two Year Warranties

•  “Untreated wood posts” that are installed in contact with soil such that they cause unreasonable decay. California Civil Code section 896(g)(8).
•  Dryer ducts. California Civil Code section 896(g)(14).

Four Year Warranties

•  Plumbing and sewer systems. California Civil Code section 896(e).
•  Electrical systems. California Civil Code section 896(f).
•  Exterior pathways, driveways, hardscape, sidewalls, sidewalks, and patios. California Civil Code section 896(g)(1).
•  Untreated steel fences and adjacent components that cause unreasonable corrosion. California Civil Code section 896(g)(9).

Five Year Warranties

•  Paint and stains causing deterioration of building surfaces. California Civil Code section 896(g)(10).

Ten Year Warranties

•  All other components not specifically referenced in other warranties, including foundation systems, retaining and site walls, support beams, etc. California Civil Code sections 896 and 941.

Dispute Resolution Procedures

As its name indicates, the Right to Repair Act not only provides for warranties, but also provides builders with the right to repair defects before being subjected to legal proceedings. Prior to filing an action against a builder, the claimant must submit a claim describing the defect and allowing the builder to inspect the defect. The builder then has the option to offer to repair the defect, mediate the dispute, or offer cash in lieu of the repair.

Importance of Understanding New Construction Warranties

The warranties provided by builders are exceedingly important because, unlike existing home purchases, the escrow process in connection with purchasing a new construction typically does not include a “physical inspection contingency” period. When buyers are purchasing an existing home, typically the buyer has an opportunity to conduct some due diligence as to the physical aspects of the property, and if the buyer is unsatisfied he or she can cancel the agreement without being in breach. Sellers of new construction, on the other hand, are often reluctant to include such a provision in their sales contracts. As a result, the new construction warranties provide important protections for buyers who might subsequently uncover issues for which the seller is responsible.

This article is not intended to be, nor should it be interpreted to be, legal advice. Please consult with an attorney concerning the specifics of your situation, and whether a new construction warranty might apply.

How To Buy Real Estate With Bitcoin

What is Bitcoin?

The world is buzzing with a new asset class called cryptocurrency. This started with the introduction of an open source system called Bitcoin which was launched in 2009 by an unknown group of engineers and a main developer known as "Satoshi." The digital network eliminates the requirement for third parties or intermediaries like governments and banks to create financial transactions. In short, it’s a decentralized store of value due to it's built in transferability, fungibility, scalability and scarcity.

The decentralized payment system is completely based on the internet, where every Bitcoin transaction history can be derived using the user’s anonymous wallet address. Bitcoin uses blockchain technology to decentralize and democratize the accounting ledger. This ledger is checked and modified using multiple nodes, also known as "miners," to validate each transaction (a role that the banks and payment processors traditionally filled.)

Any computing device could in theory be a payment processor on the network. This democratizes the network with tens of thousands of mining devices existing in many locations all throughout the world.

A Bitcoin wallet is extremely secure because it contains a unique public key and a non-public key, which provides proof of authorization and permits the owner to initiate and sign transactions digitally and instantly using any device.

The main downfall currently is the fact that the cryptocurrency's value is extremely volatile because the worth of Bitcoin is influenced by the law of supply and supply in a rapidly growing market. Although the volitility exsits, it's likely to decrease as wide spread adoption continues and the network grows larger.

There are several benefits of using a Bitcoin:

• Good potential for higher growth (10 year average of 200%+ growth in value per year)
• The transactions may be processed at any time with potentially lower fees compared to banks and credit cards
• The transactions are semi-private and secure
• Most importantly, it eliminates the necessity for third parties – banks/government intermediaries.
• Divisibility, one bitcoin can be sold by a single "Satoshi," which is the smallest Bitcoin unit you can find in the market. There are 100 million Satoshis in a Bitcoin (0.000000001 BTC). Think of them as bitcoins version of a penny.
• Scarcity, the maximum amount of Bitcoins that will ever be made is 21 million. Currently less than 19 million are in existance and a portion of those have been lost as well.

There are also a few drawbacks or threats in using bitcoin:

• The cryptocurrency’s worth is extremely volatile
• Cryptocurrency wallet storage face hacking concerns (depending on what type of wallet is used)
• Losing access to wallet assets with accidental loss of passkeys
• U.S. Law treats profits as capital gains

Mortgage loans using Bitcoin:

Bitcoin plays a significant role in the emerging decentralized financial markets, where it serves a lot of functions which include issuing loans against Bitcoin which can help bypass traditional capital gains taxes compared to just selling the coins.

If you are reaching to pay your current mortgage using bitcoins, then all you've got to do is exchange your bitcoins for dollars, then deposit them to your bank account and pay your lender as usual. 

However, emerging finance companies are now offering a blockchain-based loans which can be activated or approved in a matter of minutes, rather than watching for the traditional approval of loans where it takes days for the approval. Additionally, it eliminates the high processing fees that are been charged with traditional lenders. The main drawback currently is the amount of reserves required for most Bitcoin lenders, who generally will require 2.5x the amount of assets compared to the loaned amount. For example, if you take out a $100,000 loan you would be required to pledge $250,000 worth of bitcoin as collateral for the loan.

Blockchain enhances smart contracts, where it ensures that each loan seekers and lenders tend to comply with possible terms relating to providing proof of funds and planning for payment. These contracts eliminate the utilization of banks and lawyers by confirming and recording the transactions. Blockchain technology has many benefits to mortgage loans – lower value, high security, time-saving, clear delivery and approach, no third parties concerned, record keeping, simply accessible, etc. 

Capital Gains Implications:

The U.S. Internal Revenue Service (IRS), has said that Bitcoin should be treated as an asset or an intangible property and not a currency because it is not issued by a central bank. This treatment of Bitcoin as an asset or intangible property portrays the tax implications on Bitcoin. All kinds of transactions using Bitcoin must be reported, no matter how small in value it is.

A short-term capital gain tax rate is applied on any profits, when bitcoins are held for a shorter duration (less than a year) before selling or exchanging it. This is as same as the ordinary income tax rate. A long-term capital gain tax rate is applied, when bitcoins are held for a longer duration (more than a year) before selling or exchanging it.

Taxpayers in the U.S. are required to maintain a record of all purchases, investments, and selling done through bitcoins to get hold of products and services (that IRS considers as bartering)The transaction becomes a taxable one, if you use bitcoin regularly to purchase items online instead of using cash, as the Bitcoin is converted into an asset, it incurs taxes.

Purchasing Real Assets with Digital Currency:

If you currently have signficate amount of value in Bitcoins, you may be considering purchasing Real Estate assets to diversify your portfolio.

We recommend considering three different avenues to go about purchasing a Real Asset using cryptocurrecy.

• Offer the Cryptocurrency as direct payment of the asset
• Use a fiat loan on the cryptocurrecy
• Sell the cryptocurrency for fiat currency

The first method has a least amount of complications and tax obligations but requires a Seller that is willing to accept cryptocurrency and a escrow company familiar with using cryptocurrency to facilitate the transaction instead of fiat dollars. 

If you are unable to negotiate with a seller to directly accept only the cryptocurrency, a smarter way can be utilized to limit these tax liabilities and purchase real assets. This way would be to take out a loan using a site like BlockFi, Nexo, or SALT. Once you receive the loan in Dollars, backed by Bitcoin, you can then use those funds to make the purchase. 

If getting a loan isn't up your alley, your last option would be to sell the cryptocurrency and use the proceeds to make the purchase of the Real Asset. The downfall with this method is you would have to use the after-tax proceeds for the purchase.

Interested to learn more or purchase property using Bitcoin? Get in touch with one of our licensed agents. We're happy to help!