If you’re considering selling your home in the near future, you’ve probably started thinking about how much you could sell it for. While you may have tried out some online home value estimators like Zillow Zestimates, most of these tools won’t provide you with the most accurate estimate of your home’s value.
Although these estimates are often a good starting point, they shouldn’t be taken at face value. This is because their algorithms only take into consideration the data that’s available to them, while overlooking critical factors like your home’s condition, unique features, and location that only a human can evaluate. That’s why Jovio’s home estimate tool is always quality checked by a Jovio Market Specialist. Try our free home estimate tool now →
In reality, the best way to determine how much your home is worth is by conducting a Comparative Market Analysis or CMA. To do this, you’ll want to work with an experienced REALTOR® who understands your local market.
A Comparative Market Analysis is a method of estimating a home’s value based on recent sales of similar properties in the same area. The CMA is a tool used by real estate agents to help them determine what a property is worth. They do this by assessing the features of your property and finding “comps” or comparable properties that are similar to your own.
It’s important to note that a CMA is just one method for determining a property’s value. There are two other methods that are also used: Replacement Cost and the Income Approach. Generally, the Replacement Cost method would be used for historic homes where the cost of the materials is very high or new construction homes where the costs of the materials is known. The Income Approach is typically used for investment properties and estimates the value of a property based on the income it generates.
When all is said and done, a Comparative Market Analysis will likely include three to four comparable properties. These properties should share similar features to your own home, have recently sold, and be in close proximity to your home. The analysis will include the sold price of the properties along with a proposed listing price for your property. Some agents may also include other market data including days on market and pricing trends.
Most agents will provide this service for free and it can be a great way to get a sense of an agent’s work before you sign up to work with them. If you understand the different components that go into creating a Comparative Market Analysis, you’ll be able to pinpoint the agents that really know their stuff when it comes to your neighborhood and the local market.
Pro Tip: If you’re using a comps analysis as a way to interview an agent, be wary of choosing an agent solely because they provide you with the highest price. Sellers who do this usually come to find out the number wasn’t accurate to begin with.
A Comparative Market Analysis is a great tool for real estate agents to determine a home’s current market value. Although they are often very accurate, it is not a guarantee that your home will sell at the price provided to you in a CMA.
The accuracy of the CMA relies heavily on the comps that are chosen. Different comps will bring about different results. That’s why it’s so important that the comps are as similar as possible and adjustments are made for unique features. This will bring about the best results. Even still, the market is always changing and the sales price of your home will likely differ from the price you asked for.
To calculate your home’s value, you’ll want to seek the help of a licensed REALTOR® who understands the nuances of your local market and can provide you with an accurate estimate of your home’s worth. When conducting a Comparative Market Analysis, a REALTOR® should take the following steps:
In order to find comparable properties, a REALTOR® will first start by identifying the basic features of your property, including:
Once they have a good idea of these features, they’ll move on to assessing the overall location of your property.
The location of a property largely impacts its value. Properties located in close proximity to popular shopping centers or within a highly sought after school district will add value to the home, whereas properties close to a railroad or highway may decrease its value. An agent should get an idea of your neighborhood and the surrounding area before they start searching for comparables.
Aside from assessing your neighborhood, a good REALTOR® will take the time to visit your property in-person. A walkthrough of your property will allow them to get a clearer picture of your home’s overall condition–a factor that will affect your home’s value.
Did you know Jovio offers every home seller a complimentary property visit? Schedule your property visit now →
While touring your property, an agent should take note of any additions or upgrades you’ve made to your home, as well as any items that may need to be updated in the near future. Both the interior and exterior of your home should be taken into account. Other amenities, such as a gated community or proximity to desirable shopping or dining areas, should be considered.
Once your property has been assessed, a REALTOR® will begin the process of finding comparables. Most real estate agents will use the local MLS to find comps. The MLS, or Multiple Listing Service, is a members-only site that can only be accessed by agents who are a member of their local association of REALTORS®.
When conducting a Comparative Market Analysis, an agent will look for homes that have recently sold and share the following similarities with your home:
Once they’ve found recently sold homes that fit the above criteria, they’ll typically present you with at least three comparables. The more comps, the better, but three properties is usually a good rule of thumb.
Now, are you ready to do some math? First, the agent will calculate each comps’ price per square foot. This is done by dividing its sales price by its square footage. Next, they’ll determine the average price per square foot of all the comps. Lastly, to calculate your property’s estimated value, they’ll multiply the average price per square foot by your property’s square footage.
After an agent has come up with an estimated sales price for your home, they’ll revisit any unique features and adjust the price, if necessary. For instance, if none of the other homes have a bonus room, they may adjust the price to reflect this feature.
Pro Tip: If you’re considering making upgrades to your home, it’s important to know that the cost of the upgrade may not equal its value. For instance, if you invest $50,000 into putting in a pool, you likely won’t get that $50,000 back when you sell your home. A more realistic return on investment for a pool is $10,000. Curious what other upgrades might not get the return on investment you were hoping for? Check out these 5 home improvements that actually lower your home’s value.
When it comes to choosing comparable properties, location is key. Comps should be located within the same neighborhood and subdivision, if possible. If not in the same neighborhood, then in the same general area.
A comps analysis relies heavily on the similarity of properties but almost every home will have some unique characteristics. Comps should be as similar as possible and adjustments should be made to take into account any special features your home has.
A CMA should be based on recent sales. Timing is everything. Real estate markets are always in flux and constantly changing. The more recent the sales, the better. Ideally, comps should have sold within the past two or three months. However, for properties in rural or unique neighborhoods, agents may need to look at comps further out. What’s even better? An agent that provides data from current pending sales to provide you with the most up-to-date pricing data.
A comps analysis should not compare listing prices. Listing prices are not always an accurate reflection of the market. Oftentimes, these prices can be inflated or even purposefully underpriced. Instead, the analysis should compare final sales prices.
Aside from assessing a property’s features, CMAs should also take into account other factors such as condition, style, and curb appeal. A fixer upper shouldn’t be compared to a newly remodeled home and a one-story ranch home shouldn’t be compared to a modern two-story home. Comps should be in a similar condition and share a similar style to that of your own home.
As you can see, a lot goes into creating an accurate and reliable Comparative Market Analysis. It’s for these reasons that a CMA should be done with the help of a qualified REALTOR® who understands the market and how to select the right comparable properties for your home.
To get a better understanding of what a Comparative Market Analysis looks like, consider the example below. In the Property column, you’ll see the features of the property for which the CMA is being created. In the four columns to the right, you’ll find four comparable properties.
To show how different comparable properties can affect an analysis, we’ve included one comparable that, in this case, probably should have been excluded. Can you guess which one? Scroll down to see if you guessed right!
When all four comps are taken into consideration, the average price per square foot comes to $113.08. If we take our property’s square footage of 2,790 and multiply it by $113.08, we get a proposed list price of $315,493. Sounds pretty good, right? But if you take a closer look, you can see that one of these comps is not so much like the others, and in fact, varies quite a bit from our property.
It turns out Comp 1 probably isn’t the best comparable. Not only is it in a different subdivision, but it sold several months prior, was built five years earlier, and has a smaller lot size, among other things. If we were to exclude this property from our calculations, our average price per square foot would come to $119.12, bringing our proposed listing price up to $332,345.
Looking back at the comparable properties, it seems this price is much more in line with the comps that our property is most similar to. It’s for this reason that choosing the right comps can make all the difference when it comes to determining an accurate listing price for your home.
While a CMA will provide you with a good valuation of what your home is worth, it’s important to understand that a CMA and an appraisal are not one in the same. An appraisal can only be performed by a licensed Real Estate Appraiser, whereas a CMA is prepared by a real estate agent. A CMA is used to determine a listing price for your property, while an appraisal is used by the lender to ensure the property isn’t worth less than the buyer is paying for it (and the lender isn’t loaning more money than they need to).
All in all, CMAs are an important tool in understanding your property’s worth and helping you determine a list price for your home. If you’re looking for an in-depth Comparative Market Analysis of your home, we’re always here to help. Schedule a call to speak with a Jovio Market Specialist to get all of your home value questions answered.