Where does a comparative market analysis, commonly referred to as a CMA, come into the picture? Before you begin the process of selling your property, to be able to determine an asking price, you need to have an estimate of its home market value.
You've probably received all sorts of junk mail from local real estate brokerages over the years offering free no-obligation evaluations. Some of these agents might simply visit your home and offer a verbal opinion of value. They may be accurate, but how would you know, especially if you don't know and trust them. Others might be willing to invest the considerable time and effort necessary to thoroughly research and prepare a detailed written CMA.
Although comparative market analysis reports can vary in scope, from brief summaries to multi-page tomes, written or digital, a typical comparative market analysis report will contain the following information:
These are listings of homes (the competition) currently for sale in your area. Since sellers can ask whatever they want for their homes, no conclusions regarding home market value should be drawn from these. Often, they're unrealistic anyway. Only a sale price may be considered indicative of market value. However, if a competitive listing is priced realistically, it can help in determining an asking price. It's wise to list competitively.
These are homes currently under contract, that is the sellers have accepted a conditional offer from a buyer who needs to arrange financing, a home inspection, has a house to sell or requires time to fulfill some other responsibility prior to committing to an unconditional (firm) sale. Industry rules prohibit the listing brokerage from publishing the agreed sale price until all conditions have been fulfilled by the buyer, or seller in some cases. However, conditional sales can indicate market trend.
The best comparable sales are listings of homes that have sold during the past few months (or days in hot market), assuming market conditions remain the same. These are the sales included in house appraisals performed by an accredited appraiser when evaluating your property for the buyer's mortgage lender. Because these are the actual prices paid for homes similar to yours, it's important for you to seriously consider this portion of a comparative market analysis. Adjustments can be made to the estimate by your agent (or yourself, if selling privately) to reflect improvements or deficiencies of the other properties.
These are listings of properties that were not sold during the term of the listing agreement, or were removed unsold from the market.
Usually, a listing expires unsold for one reason and one reason alone - the asking price was too high. In such cases, a prudent new seller should carefully consider even these listings when pricing their own home. They really don't want to make the same mistake of over-pricing.
Listings are also removed from the market prior to expiry for various personal reasons, such as a change of plans by the homeowner.
These are listings of properties that most closely resemble yours in style, size, age, features, improvements, upgrades, physical condition and location. Obviously, a larger home or a different, more valuable architectural style or with more amenities and upgrades would have a greater market value than yours. And a comparable property - virtually identical to yours - but backing onto a railway track would have a lesser value. Similar homes situated on busy roads are often worth considerably less than homes on quiet streets unless, for example, the property is zoned commercial. And if you've delayed renovating your property over the years, count on a lower estimate.
It's virtually impossible for a homeowner to avoid being subjective, that is to say biased, regarding their own home. Therefore, it's very important for a homeowner to seek an honest professional opinion. A realty agent or a professional residential appraiser has the capability of viewing your property with absolute objectivity in the same manner as a buyer who lacks emotional attachment. That's quite normal.
The vast majority of homeowners often feel their homes are worth far more than what is realistic. After all, one's home is their castle, right? During my career, I recall only two occasions on which I had to advise a new seller client that their home was worth more than they believed it to be. Fortunately, they trusted me because I sold their homes at a higher sale price than they expected. Were they happy? You bet.
If you're seriously considering listing your home for sale, with the hope of winning your listing, eager beaver agents will likely not charge a fee for their time and effort to prepare for and undertake the evaluation appointment. However, if you want to have an estimate of fair market value and don't plan to list it for sale in the immediate future, and you choose not to hire a company that specializes in house appraisals, it's only fair to so inform the agent before they do the work. They may not want to work for free and elect to charge a small fee for the report. So, if you need a comparative market analysis for a matrimonial conflict, a law suit or for any other non-sale reason, even simple curiosity, be honest. I urge you to not take advantage of their trusting, enthusiastic interest in serving you.
Now, having said all this, keep in mind that these reports are just an educated guess. No one has a crystal ball. You'll not have a definitive estimate of fair market value until your home is sold. Period.
If you're asking the question 'what is my house worth?', there's only one way to find out. You either have a house appraisal performed by a certified appraiser or hire a realty agent to produce a comparative market analysis.
Can you imagine attempting to sell your house without one?
In a crazy hot market, you might attempt to sell privately. However, I recommend a professional evaluation before beginning the marketing process. And by all means, prepare and stage your house and lot for marketing before you stick the sign in the lawn.
Click this link to learn more about comparative market analysis from a buyer's perspective. CMA's are also occasionally requested by and created for buyers prior to offering on a property listed for sale.
For further advice for homeowners interested in learning more about listing and selling, visit the Canadian Real Estate Association's (CREA) website. The National Association of Realtors (NAR) in the United States may offer related advice for consumers.
If you're interested in learning more about selling your own property - including privately - check out my book The Happy Agent. Learn how to effectively prepare your home for market, how to advertise, how to handle showings and open houses like a pro, how to successfully negotiate an offer, and when it's time to throw in the towel and hire a professional.
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