Home owners often struggle when it comes to pricing their property. Emotional ties and financial hardships can cloud even the best judgements, making it difficult to settle on a reasonable asking price.
Luckily, real estate professionals often opt to avoid this uncomfortable situation through the use of a comparative market analysis (CMA). An evaluation of listings and the sale prices of similar houses in the same area, a CMA is similar to an appraisal in that it provides an estimate of your home's current market value. A CMA differs from an appraisal in that it's not performed by an independent appraiser, but a real estate agent. If your agent is worth his or her weight and has a good working knowledge of your neighbourhood, a CMA should come very close to the appraised value.
Why is a CMA useful?
As stated above, CMAs are a useful pricing tool for home sellers. But sellers aren't the only ones who can benefit from the data provided by a comparative report. Buyers also use CMAs to determine the fairness of listing prices.
A comparative market analysis is often done as part of a mortgage refinance application or when a homeowner is seeking a second mortgage. A CMA will show whether or not the value of your home is high enough to refinance at the current mortgage rate. CMAs can also come in handy if a homeowner is looking to see if their home has gone up in value or increased enough in equity in order to apply for an equity loan.
What data is contained in a CMA?
The length and complexity of a comparative report depend on the agent's business practices. With that being said, most comparative market analysis reports contain the following information:
- Active listing details
This section summarizes active listings in your neighbourhood. This information is important because these homes are in direct competition with your listing. It's worth noting that these listings aren’t necessarily indicative of market value (there's no way of telling how other sellers in your neighbourhood came up with their asking prices), however you'll want to take these numbers into consideration when working through your own pricing exercise. If your list price is substantially higher than your local competition, you could be setting yourself up for a long and difficult haul.
- Pending listings
Pending listings are homes that are no longer active on the market, but are still under contract. Since these listings have not yet closed, you won't know the exact sale price. However, unlike active listings, pending sales are indicative of the direction that the local market is moving in. If you price your home above the list price of pending sale properties, you could see your property sit on the market for a prolonged period of time.
- Sold listings
Any home that has closed in the past six months is a good comparable property. These are the homes that an appraiser would look at when estimating the value of your property. These are the listings that you'll want to pay the most attention to when reviewing your comparative market analysis.
- Expired, off-market, withdrawn, and cancelled listings
This section of your comparative market analysis will provide you with a good indicator of the highest median sales price of homes in your neighbourhood. While there is any number of reasons why a home doesn’t sell, more often than not, price comes into play. As such, the median price of this group of listings will almost always be higher than the median price of comparable active, pending, and sold listing in your neighbourhood.
What to look for in a CMA report
When reviewing your CMA, keep an eye out for homes that are similar in size, shape, and condition to your own. Pay close attention to homes with:
- Similar square footage
Appraisers compare homes based on square footage. A good rule of thumb to remember is that the variance among a group of median-priced homes ideally should not exceed more than 200 to 400 square feet, on average.
- Similar age and construction type
Look for homes that were built within a few years of your own. And just because your home is older doesn't mean that it's worth less. A home that's full of 1950s character will often sell for more than a 1970s bungalow. An agent will be able to help you understand the value of your home's style in comparison to neighbouring properties.
- Similar in amenities and upgrades
A home with a wrap-around deck will have a different worth than a home with an inground pool. Not surprisingly, a completely remodelled home will be worth more than a handyman's dream. Keep this in mind when pricing your property.
Once you've found homes that closely resemble your home, it's time to take a look at their locations. A home on a quiet street will be worth more than one that's located on a busy thoroughfare. If your home sits across the street from a supermarket, while a similar comparable property backs onto a school, chances are you'll need to list your property slightly lower than the one that's in a more favourable location.
An objective evaluation
A comparative market analysis will make the process of pricing your home easier and less subjective. Once competitively priced, the odds of selling in a timely period increase greatly. As with other investments, objective market conditions will dictate the true value of your home – and that’s knowledge worth seeking out.