What is comparative market analysis (CMA)? Why you need to know?
Selling a home is a bit more complicated than putting up a sign, setting a price and praying and hoping to get a buyer to show your home. Although it involves an element of suspense, and is not often a scientific certainty, it should not be a gamble either. There are proven ways to minimize the number of “Days on Market” (DOM) and maximize the selling price.
One of your best tools is a Comparative Market Analysis (CMA). When you first consider the possibility of selling your home, you will undoubtedly have some sense of its value, and at least a ballpark expectation of the price you can ask.
But a comprehensive examination of recent transactions, known as the CMA, will give you a graphic and honest appraisal of local conditions. Month-to-month comparison and previous year statistics for sales, price adjustments, pending sales and withdrawn listings provide insight into trends. Market conditions in Phoenix AZ vary from one month to the next and can change dramatically over the course of a year.
The CMA is used to help evaluate how your home will fare against the competition. It takes a look at both homes that are currently listed and those recently sold. The purpose is to find the highest price that will still make the home competitive on the open market.
Standard comparative market analysis reports contain the following data:
- Active Listings
Active listings are homes currently on the market for sale. These listings matter only to the extent that they are your competition for buyers. They are not indicative of market value because sellers can ask whatever they want for their home. It doesn’t mean any of the prices are realistic. The offered sales prices do not reflect market value until they are sold, and in buyer’s markets, for example, most sell for a lot less.
- Pending Listings
Pending sale homes are homes that are under contract. They have not yet closed, so they are not yet a comparable sale. Unless the listing agent is willing to share information about the pending sale — and many are not — you will not know the actual sold price until the transaction closes. However, pending sales do indicate the direction the market is moving. If your home is priced above the list price of these pending sales, you could face longer DOM (Days on Market).
- Sold Listings
Normally homes that have closed within the past six months are your comparable sales. These are the sales an appraiser will use when appraising your home for the buyer, along with the pending sales (which will likely have closed by the time your home is sold). Keep in mind that every market are different, in a fast changing market such as in Phoenix AZ, past 3 months sales can be used as comparable.
- Off-Market / Withdrawn / Canceled / Expired Listings
These are properties that were taken off the market for a variety of reasons. Usually the reason homes are removed from the market is because the prices were too high. The median prices of this group will almost always be higher than the median prices of comparable sales.
Analyze the CMA Facts
Comparable sales are those that most closely resemble your home. It is difficult to compare a tri-level home to a single-story home. Select the homes from this list that are mostly identical to your home in size, shape and condition, such as:
- Similar square footage
Appraisers compare homes based on square footage. Larger square-foot homes are worth less per square foot than smaller square-foot homes. The variance among a group of median-priced homes ideally should not exceed more than 200 to 400 square feet, plus or minus.
- Similar age of construction
Ideally, the age of the home — the year it was built — should be within a few years of other comparable sold homes.
- Similar amenities, upgrades and condition
Appraisers will deduct value from your home if other homes have upgrades and yours does not. A home with a swimming pool will have a different value than a home without a pool. A completely remodeled move-in ready home is worth more than a fixer. Homes with one bath are worth less than homes with two or more baths.
Everybody knows that real estate is valued on “location, location, location,” but have you considered what that means? A home with a mountain view, for example, is worth more than a home facing a cement wall. Homes located on busy or main street are worth considerably less than homes on quiet streets. Compare your home to those in similar locations.
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