Table of Contents
Latest posts by Gea Elika (see all)
- Accepting the First Offer on Your Home - May 18, 2018
- FOR SALE: Consider this Before Making a Price Cut on Your NYC Apartment - May 17, 2018
- What is a Real Estate Closing Statement? - May 14, 2018
A comparable market analysis, commonly called a CMA, is a useful tool that buyers, sellers, and real estate agents use to assess the fair value of any given property based on current demand and economic conditions. Elika Associates performs CMAs on behalf of buyers to ensure that each client purchases a property based on the present value of New York City real estate.
With a CMA, buyers can submit fair offers that are likely to be accepted without committing to pay more than a property is worth.
Image by Ballun/Istock
Submitting an Educated Offer
Elika Associates helps buyers negotiate the best price and purchase terms. Completing an accurate comparable market analysis is one way that Elika Associates makes sure you are getting the best deal before you submit an offer. As a buyer’s agent, Elika uses a client-focused approach.
To assess the value of an active listing, Elika uses an industry-leading seven-point market assessment. This approach determines property values according to current market trends, property specifications, and seller-specific details. Agents also study real-time information and market sentiment that affects actual property values and increases the opportunity for negotiations.
To make sure buyers have a complete picture of the property they are interested in purchasing, Elika considers historical performance and up-to-the-minute market updates. Game-changing details include things like how a specific property has performed in the past, whether the building has above-average owner-occupancy rates or if it is an underperforming property. If the building has a poor performance history, this information could help you make a more competitive offer or help you decide not to purchase in such building.
Developing an informative CMA requires thorough research and market experience. The future of a property is also essential. Elika agents advise prospective buyers about the property’s best attributes. Is the property located in a desirable or upcoming area, does the property appeal to a wide variety of buyers, does it have unique desirable structural/architectural features, and is there room for improvement? These are a few of the questions that a comparable market analysis will answer.
10 factors to consider when completing a Comparable Market Analysis
A comparable market analysis is only as good as the information that is used to generate key findings. Gathering comparable sale prices is the first step when determining a price range for a particular home. Individual property attributes, such as the current condition, recent upgrades, economic factors and the seller’s motivation, all determine where fair market prices lie. In any given neighborhood, the value of a property could be near the low end or the upper limit. It’s also possible that you believe a fair price falls outside this established range. It is imperative your buyer’s agent complete a thorough assessment to estimate fair market prices based on property conditions and the broader market.
The information in a comparable market analysis will help you determine a fair starting point and maximum purchase price. Traditionally, the first offer you submit should not be the price that you are willing to pay at the end of negotiations. Buyer’s agents can provide advice and help individual clients come up with a suitable number. However, in the end, the buyer is the only person who decides what offer is submitted.
1. How Motivated is the Seller?
A motivated seller is a buyer’s ally. If a seller is motivated, a buyer has more room to negotiate. The most common reason sellers become motivated is that they have already purchased another home or need to complete a long-distance move. In these situations, the seller feels financial pressure and has a limited timeframe to sell their property. If they cannot sell quickly, they may have to make two mortgage payments each month. To avoid financial problems, most motivated sellers are willing to reduce their asking price or to accept a lower offer than the owners of similar properties might consider. This motivation to avoid financial hardship can result in significant savings for well-informed buyers.
Family issues and personal problems can also make a seller more motivated and more flexible. Occasionally, real estate ads will say things like a divorced couple, motivated seller or relocating family. Buyers should always be wary of these types of marketing techniques. Although the claims probably aren’t false, the seller may not be ready to accept a low offer. Because it’s difficult to determine how motivated a seller is, it’s important to tread carefully when making an offer. Don’t let a high asking price influence your initial bid. Always consider the value of the property and your personal needs when determining how much you are willing to pay.
While searching for properties, buyers may find a motivated seller who is genuinely distressed. In this type of situation, the seller’s misfortune can help buyers save several thousand dollars on the asking price. If the seller permits, the agent submitting the listing will be able to include this information. If the information is available to agents through REBNY the Real Estate Board of New York, an Elika agent will be able to tell you if the data is legitimate or if it is fluff that is designed to help the seller.
However, there is one exception. If a dual agent is showing a home that he or she listed, the agent is not permitted to disclose information that might help the buyer and hurt the seller. In this case, buyers are on their own when negotiating a price and terms. Dual agents have an apparent conflict of interest, which is why serious buyers should always work with a buyer’s agent.
2. What Are the Market Conditions?
Market conditions play a strong role in determining the average going price for comparable properties. When completing a CMA, you should always consider current economic conditions. There are two basic market types: the sellers’ market and the buyers’ market. When the market is hot, and inventories are low, sellers have a strong advantage. In these conditions, properties sell quickly, and sellers often receive multiple offers. Homes may also sell for more than the asking price. Although a hot market does not favor buyers, you might find the perfect property. To avoid losing out to another buyer, it’s smart to increase your offer to ensure you get the property you want.
A slow market, on the other hand, favors buyers. In these conditions, properties sit on the market for months and offers are scarce. Home prices may also begin a brief decline, which makes sellers more likely to accept a low offer before prices fall further. If there is an extensive inventory of homes that have been on the market for some time, buyers should start with a lower offer. Even if buyers submit low-ball offers, the seller is more likely to make a serious counteroffer in a buyers’ market. Always bid with negotiations in mind when the market is slow.
Usually, the real estate market is fairly steady and is not in transition. In a steady market, buyers must bid according to their budget and must trust their instincts when deciding if they should make a high offer or if they should bid conservatively. In this climate, buyers could find a property where no competing offers have been submitted. Likewise, buyers could get in a bidding war over a desirable property. Buyers should always use caution when submitting a high offer. When a sellers’ market transitions down and buyers gain power, property values may decline, and this could affect your investment.
3. Bidding According to Property Conditions
The location has the most significant bearing on property values, but the interior and exterior condition of the property and its structural integrity must also be considered. By seeing several properties in your desired price range and neighborhood, you’ll have a better feel for how these properties compare. A simple way to grade the current condition of a property is to classify it as average, below average or above average.
Areas to consider when evaluating the condition of a home are the structural integrity and age of the building. Carefully assess the condition of the plumbing and electrical systems as well as the bathroom fixtures, floors, the kitchen and critical systems, such as the air conditioning unit and furnace. If you aren’t an expert, have a professional home inspector advise you about the condition of these areas. Make sure the outlets and circuit panel are up-to-date and check to make sure that all drains flow freely.
Factors that affect the desirability and practicality of any property are floor plans, room size, closet space, room layout and the usability of living areas compared to other homes of the same style, size, and age. You and your Elika agent can work together to uncover any drawbacks that affect the actual or perceived market value. By visiting properties used to generate a CMA, your Elika agent can provide first-hand insight into how these properties compare.
4. Capital Improvements and Upgrades
Determining the actual and perceived value of upgrades is an area where your buyer’s agent can be invaluable. Major upgrades in key rooms, such as the kitchen and bathroom, can affect property values significantly. If walls, floors, building systems and fixtures are in good condition, the buyer will have fewer improvements to complete down the road and vice versa. To avoid problems, it’s critical to make sure that all major improvements and upgrades are legal, up-to-code and completed according to municipal regulations. In a CMA, your buyer’s agent can give you insight into the actual value of all upgrades or the cost needed to complete necessary repairs, which will affect your offer price.
5. Comparable Sales and What They Mean
The first rule in developing a CMA is making sure that the included properties are comparable. Start by finding recent closing prices for properties that are similar to the one that you’re considering. Compare the location, square footage, number of bedrooms and bathrooms, property amenities, construction style, age and condition of each property.
In a condo or coop apartment building, evaluate the going price for identical units. Your agent should compare relevant market data from four key sources to give you an accurate price picture. In many cases, this industry data is not available to the general public. Much of this data will come from public record sources and the RLS.
6. RLS & ACRIS Price Records
Gathering recent closing prices for comparable properties is a three-step process. The first place where your Elika agent will look for current closing prices is the RLS and ACRIS database. Your agent will start by looking for properties in the same price range. Then, the list will be narrowed down by specifications, such as the condition and upgrades that are most similar to the property you are considering. The seller’s level of motivation and current economic conditions will also be evaluated.
Until recently, access to data from the RLS database was limited to professional Realtors. Today, some of this information is available to the general public through various real estate websites, including PropertyShark and ACRIS. An experienced buyers agent makes it easier for buyers to access information on all currently available properties and closed listings in Manhattan and New York City’s five boroughs.
Once a property is sold, the closing price is posted in the RLS database. This resource is a gold mine for determining the fair market value of comparable properties. Your buyer’s agent will scour the RLS database for similar homes and recent sales that match the profile of the property you’re interested in purchasing. This information is invaluable when creating a report that will affect all of your offers and negotiations.
7. Public Record Closing Prices
Each county maintains a list of closing prices that are associated with the transfer of property deeds between sellers, buyers, and lenders. Counties use this information and related specifications to assess property taxes. Documents in the public record include the closing price, square footage, number of rooms and other specifications that are very useful when generating a CMA. This information is usually very accurate. However, these sales numbers are six to eight weeks behind current trends. This delay is associated with the typical escrow period. Although public records are helpful, current data is the most valuable.
8. Title Companies
Title companies also maintain a list of recent closing prices. These title insurance companies gather data directly from the county records, or they purchase it from other businesses. Like other public records, this data is typically six to eight weeks on the market. To gather a comprehensive list of current closing prices, your Elika agent will use a combination of data from the RLS database, the county recorder and local title insurance companies.
9. Fresh Data from Pending Sales
To make informed offers, buyers must have access to current numbers and a comparative market assessment that accurately gauges economic conditions and going prices. Elika Associates works hard to make sure that all buyers have access to the most current sales figures. Selling prices from last week are always better than numbers from six months ago, which may not accurately reflect the state of the real estate market. Unfortunately, securing access to the freshest sales figures isn’t easy. Official sales numbers are not available until after the closing process is complete.
Before a sale is finalized, neither the RLS database nor the public record offices collect information. To protect the seller and maintain a closed bidding process, this sensitive data remains private in case the sale falls through or the buyer can’t qualify for financing. Public offices don’t collect any information until the deed is transferred. After contractual negotiations are finalized, and funding is in place, the transaction becomes a pending sale. However, final closing prices won’t be available until after closing. In some cases, Elika Associates can become privy to pending sales prices through colleagues. These fresh numbers give buyers insight into comparable markets so they can make better bids based on current trends.
10. What’s Your Offer? Analyzing the Bidding Process
Deciding on an offer is the most significant and most important question that remains after a buyer decides they are interested in purchasing a specific property. At this stage, buyers will have a comparative market analysis, and they will know the seller’s asking price. Using these two pieces of information and advice from a buyer’s agent, the client must come up with an appropriate bid that will win the home or open negotiations. Buyers can develop an opening bid in three steps.
First, the buyer must consider recent sales figures to establish a price range. From the beginning, the buyer and the buyer’s agent will review the property’s condition, which improvements exist and which improvements are needed. Next, the buyer must see if anything can be learned about the seller’s level of motivation. If there is any sign that the seller is ready to move, this should be factored into the initial bid.
Using an in-depth comparative market analysis and considering all the information that is provided in the report, anyone can come up with a competitive bid to get a great piece of New York City real estate at a price. If you’re ready to buy, Elika Associates will work with you to assess the market, pick a fair amount and get the best position in all negotiations.