FSOB: Home Valuation -- Pricing a House to Sell for Maximum Value in Minimum Time (2)

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The Comparative Market Analysis

A comparative market analysis, or CMA, is the method used by almost all real estate agents to estimate the worth of a house. The CMA method of estimating value is based on the premise of substitution. It maintains that a buyer would not pay any more for real property than the cost of purchasing an equally desirable substitute in its respective market. It’s similar to shopping for milk at the local grocery store. If Grocer A charges $2.00 for a gallon of milk and Grocer B charges $3.00 for the same gallon, most shoppers will choose Grocer A. This is true even if the shopper has to drive a few extra minutes to get there. At some point, however, it no longer makes sense to drive additional miles, and shoppers may relent to paying more.

The CMA method also assumes that all comparable sales used in the comparison process are legitimate arm’s length transactions to help ensure accuracy of the data used in the report. A comparative market analysis furthermore provides that the comparable sales used have occurred under normal market conditions. For example, this assumption would exclude properties sold under duress, such as those of a couple going through a divorce or someone who had lost his or her job and was about to lose the home to the bank. A CMA examines several properties within a given area that have sold within the last six months or so and adjusts their value based upon similarities and differences among them. Adjustments are made for differences in amenities (such as two bath rooms versus three bathrooms), square footage, and lot size.

I strongly recommend having a comparative market analysis done on the home you are selling. Without a CMA, you will have a difficult time properly estimating the value of your house. Although you may have heard from your next-door neighbor that the neighbor down the street got a certain price for her house and, therefore, your house must be worth at least as much as hers, this is not a proper basis for value. In legal terms, this would be considered hearsay and therefore cannot be relied upon. To properly determine the value of a house, empirical data is needed—that is to say, hard evidence such as that found in the multiple listing service, or MLS, used by real estate agents. You need factual information that is known to be true in order to determine the value of your house.

How to Get a Free CMA

Unless you are a licensed real estate agent, you will need to find a source of access to data in the MLS. The easiest way to do this is by contacting an agent who is already familiar with home values in your neighborhood. If you have lived in your neighborhood for any length of time, you should already have a good idea of which agents are active in it. Real estate agents tend to farm, or focus on, specific neighborhoods. Call one who is active in your area and talk to him or her about having a CMA done for your house. Most agents will provide you with a CMA study free of charge because it gives them a way of introducing themselves and the services they offer. I suggest telling your agent the truth from the outset so that there are no hard feelings. You can say, for example, that you are leaning toward selling your own house, but that you would like to hear what he or she has to say about the services he or she can offer and, more particularly, market values in your neighborhood. This gives the agent a bona fide opportunity to sell his or her services to you, while allowing you the opportunity to better understand the value of your house. If you’re honest up front with the agent, then there will be no resentment toward you. The agent is still likely to accept the appointment, knowing that in the event you are unsuccessful at selling your own house, he or she may have an opportunity to sell it at a later date.

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