A comparative market analysis assists home buyers with critical information to help determine the fair market value of a property of interest. Homebuyers make money not only well they sell a property but most importantly, when they buy a property for the right price. The main objective when planning to purchase a home is by finding and purchasing the right property for the right price.
Understanding the properties of real value ultimately will assist you in planning your negotiations. Needless to say, if overpaying for the wrong property, it is far from assured that you will make money when selling even if the property is desirable. Not all square feet are equal in value, so read on to understand the comparative market analysis process better.
Comparative Market Analysis (CMA) –
How to Determine Fair Market Value
Table of Contents
What is Comparative Market Analysis?
Listing agents use comps in real estate industry parlance, to determine the asking price. However, homebuyers should also use comps, with the help of an exclusive buyer’s agent, to help formulate the right amount to offer.
Part art and part science, and at Elika Real Estate; we think our method, born out of years of experience, can provide you an edge in the negotiating process. We consider comps to be a lagging indicator and weigh them against current market trends and sentiment in a comprehensive comparative market analysis.
How others do it
The quality of a comparative market analysis varies widely, depending on the broker. Some agencies provide recent like kind, comp sales in the building and or neighborhood. Also though the square footage may be similar, and it is in the same zip code, we suggest using this information with caution since there are vast differences from each building.
Digging deeper is important. You also want to incorporate active listings and those apartments that are under contract that can be an indicator of current market sentiment.
Remember, it is essential to have an apples-to-apples comparison. Aside from the size of the unit and neighborhood, you want information on the building such as its age, condition, and amenities. A similar apartment in another building nearby can sell for widely varying prices also taking into account, floor, exposure, light, ceiling height, condition, and floor plan, etc.
The limits of the Internet
Some websites provide comps, with many offering this as a free service. A starting point, but not a substitute for comparative market analysis. A site such as Zillow provides a Zestimate of a listing, but may not be timely or accurately take into account the condition or features of the apartment. Although it tries to make adjustments. Remember, this is an algorithm, and cannot take into account the human factor such as walking through the building, and seller’s motivation.
Other sites provide recent sales in the neighborhood. As we have stated, this is only a starting point, however. To be prepared; it is advisable to rely on experts and in-depth market analysis.
The Elika Formula
At Elika Real Estate, we have over two decades of experience. We want to use our expertise to help you buy the right property at the right price. Remember, as an exclusive buyer’s agent, we owe our fiduciary duty to you, and not the seller. Rather than relying merely on recent sales, we use a comprehensive system. Read on to learn about our formula.
How to Prepare a Comparative Market Analysis?
A comparative market analysis is only as functional; as the information that is used to generate critical 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 reasonable market prices based on property conditions and the broader market.
The information in comparative 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.
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.
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 crucial to tread, cautiously 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 thousands of dollars on the asking price. If the seller permits, the agent submitting the listing will be able to include this information.
Dual agency disclosure
However, there is one exception. If a real estate dual agency 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.
What Are the Market Conditions?
Market conditions play an active role in determining the average going price for comparable properties. When completing a comparative market analysis, you should always consider current economic conditions and market sentiment. 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 definite advantage. In these conditions, properties sell quickly, and sellers often receive multiple offers leading to a bidding war or best and final.
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 home buyer; it’s smart to increase your offer to ensure you get the property you want.
Seller’s Market vs. Buyer’s market
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 a low-ball offer or purchase, the seller is more likely to make a strong counteroffer in a buyers’ market. Always bid with negotiations in mind when the market is slow.
Usually, the real estate market is relatively steady and is not in transition. In a stable 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 into a bidding war over a desirable property. Buyers should always use caution when providing a high offer. When a sellers’ market transitions down and buyers gain power, property values may decline, and this could affect your investment.
Offering 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 be, considered. By seeing several multi 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 state 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 comparative market analysis, your Elika agent can provide first-hand insight into how these properties compare.
Capital Improvements and Upgrades
Determining the actual and perceived value of upgrades is an area where your buyer’s agent can be invaluable. Significant updates in rooms, such as the kitchen and bathroom, can affect property values significantly. If walls, floors, building systems, and fixtures are in excellent condition, the buyer will have fewer improvements to complete down the road and vice versa.
It IS critical to make sure that all significant enhancements and upgrades are legal, up-to-code and completed according to municipal regulations. In the comparative market analysis, your buyer’s agent can give you insight into the actual value of all upgrades or the cost needed to complete the necessary repairs, which will affect your offer price.
What are; Real Estate Sales Comps?
The first rule in developing a comparative market analysis is making sure that the included properties are like-kind. 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 principal 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.
Pending Home Sales
To make informed offers, buyers must have access to an accurate comparative market analysis that gauges economic conditions and going prices. Elika Real Estate 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 six months old. Lagging data may not accurately reflect the current 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 and registered in ACRIS.
Before a sale is finalized; neither the RLS database nor ACRIS collects this information. To protect the seller; this sensitive data remains private in case the purchase falls through. Accepted; offers with mortgage contingencies can fall apart should the buyer not receive 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 Real Estate can become privy to pending sales prices through colleagues. These recent numbers give buyers insight into comparable markets so they can make better bids based on current trends.
Closed Sales Registered with ACRIS
Once a property is sold; the closing price; is registered in ACRIS database. This resource is a gold mine for determining the fair market value of comparable properties. Each borough maintains a list of closing prices associated with the transfer of a property deed. The city uses 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 comparative market analysis.
This information is usually very accurate. However, these sales numbers are six to eight weeks behind current trends. Although public records are helpful, existing data is the most valuable. To gather a comprehensive list of current closing prices, Elika agents use a combination of various data sources.
This information is invaluable when preparing a comparative market analysis that will guide your offers and negotiations.
Deciding on an Offer Price
Choosing on an offer price is the most crucial question that remains once the buyer has agreed to purchase the property. At this stage, the buyer will know the seller’s asking price and have a comparative market analysis.
Considering the properties condition is also essential. Which improvements exist; and which improvements are needed and the estimated cost. Then the buyer must consider the comparative market analysis to understand the fair value spread. Next, the buyer must see if anything can be learned about, the seller’s motivation. If there is any sign that the seller is ready to move, consider this into the initial offer.
Using this information and advice from a buyer’s agent, the buyer must now come up with an appropriate offer. Such an offer to purchase will help open negotiations or potentially be accepted.
What does the future hold?
Developing an informative comparative market analysis 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?. Is there a value ad – room for improvement? These are a few of the questions that comparative market analysis will answer.
Coming up with an offer requires a detailed strategy, resources, and understanding. No homebuyer wants to overpay for a home. A comprehensive, comparative market analysis helps you formulate an acceptable offer.
Elika Real Estate helps buyers negotiate the best price and purchase terms. Completing an accurate comparative market analysis is one way that Elika Real Estate makes sure you are getting the best deal before you submit an offer.
To assess the value of an active listing, Elika uses an industry-leading seven-point market assessment. This approach determines a property fair value according to past and current market trends, property specifications and condition, building appeal, and seller-specific details. Agents also study real-time information and market sentiment that affects actual property values and increases the opportunity for negotiations.