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
- Average Price per Square Foot
- Days on the Market
- Original List Price
- School Districts
- 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.Go to wearerealty.com/value and input your home address.