One of the first questions you’ll face when selling your home includes how much it’s worth in today’s market. And if you’re purchasing another home, chances are you’ll need to know this sooner than later, in order to determine how much you can afford to spend.
Another key factor for you to know is: Price has everything to do with success when it comes to selling real estate and it’s absolutely imperative that we get this right the first time. In addition to the scenario I mentioned in an earlier section (selling for too little), you also should be leery of overpricing.
Market data shows that agents and buyers have long-term memories when it comes to listings and especially prices. If your initial price is too high, your property will very quickly become old news, in many cases after just 14 days you’ve lost the attention of most buyers.
Comparative Market Analysis
The most accurate means for determining the value of your home is by having a professional Realtor perform a comparative market analysis (CMA). This is a totally free analysis (or just know that it should be) that compares your home to previous listings that have sold within the same geographic area and with similar characteristics. Ideally, those homes will be nearly identical to yours, but in the event that closely matching homes do not exist, there are proven methods for calculating price by using the data we have on other listings.
I’ll use the most comparable homes available to come up with an appropriate price tag, but I’ll also compile all of the data for each home I use as a comparison and provide you with that information in a free report so you can see how I arrived at that number. In that report, you’ll see where I’ve made adjustments to each home’s sales price to account for how it differs from your home. (Think of this like turning oranges into apples, for the sake of an apples-to-apples comparison.) Once you have that report, just remember that should you wait longer than around 30 days to list your home, that’s fine, but we’ll need to update the information with all of the latest data to see if any new sales warrant price adjustments.
Accurate pricing requires diving deep into the data
The data used to formulate a correct price goes well beyond just the most comparable homes that have sold in your area, along with calculations based on how they differ from your home. I’ll also carefully study previous listings that failed to sell (which we call “expired” or “withdrawn” listings), as well as any that are currently under contract and awaiting final sale. While these don’t give us sales prices to go on (they never sold), they do contain some good and useful information. The competition within the current market is another important factor. I’ll examine homes that are currently listed for sale in your area in order to understand how unique your property may be, as well as how it ranks among other available homes based on its features. But again, it’s important to remember that, while homes that are currently for sale do provide an idea of what you’re up against, those asking prices do not provide an idea of what your home is worth. Remember, those homes are for sale, not sold, and nothing stops other sellers from asking whatever amount they choose. For all that we know, they could be way overpriced—or under priced—so following those numbers is a recipe for disaster. We’ll need to stick to examining properties that have proven their value by selling.
A CMA is also a job application
Obtaining CMAs offers a prime opportunity for you to interview real estate agents. And, I’d like to be your first and only choice, but I absolutely don’t mind being stacked up against the competition. If everyone’s done their best job, then we all should arrive at roughly the same asking price and suggestions. If not, I’d encourage you to look at the data that each agent provides very closely and don’t hesitate to ask each to explain and support their analysis. Also, be sure to interview every agent, carefully examining their sales and marketing strategies. We all do things a little differently, but everyone should be able to explain how their tactics are specifically tailored to your property.
CMA, versus appraisal, versus assessment
While this may be your first time hearing about CMAs, chances are you’ve come across two other forms of home valuation: appraisals (most often ordered by a lender) and assessments (performed by the city or county, for the sake of calculating local real estate taxes). These two other forms of valuation are similar in concept to CMAs, but serve different purposes. For this reason, in all likelihood, none of these figures will be the same.
An assessed value is what the city, county or other municipality assigns to your property for the purposes of calculating your real estate taxes. These valuations may be done as frequently as biannually, or as infrequently as every few years. I’ve even encountered assessments that were as much as 10 years old.
From time to time, assessed values may be spot on with the current market values arrived at through CMAs, but, more often than not, because assessed values are sometimes dated—plus the tendencies of cities and counties to slightly undervalue properties (most likely for the sake of avoiding kickback or controversy)—assessed values differ from what your home should bring on the open market.
Appraisals are most often ordered by mortgage lenders in order to determine how much they can safely lend you based on the value of your home (what they should expect to get for it, should someone default on their mortgage, as well as how much it should be insured for). Appraisals are always performed by licensed professional real estate appraisers and may be the closest thing to a CMA. If a buyer applies for a mortgage when they purchase your home (which, chances are, they will), their lender will require that an independent appraisal be performed. That’s because, while ethics require that every Realtor provide you with an accurate assessment of your home’s value, from the lender’s perspective, those same Realtors have a vested interest in obtaining the highest possible sales price (for your sake). By lending out more money than a property is worth, banks would run the risk of losing in the event of a foreclosure. For this reason, the buyer’s lender will obtain a third party, neutral opinion of value.
It’s important to note that, unlike CMAs, appraisals do cost money—typically between $250 and $500—but those costs go to the buyer of your home. In the meantime, you can use a free CMA to determine an appropriate asking price.
If you’re interested in talking to me about a free CMA, CLICK HERE. I’ll schedule a time to come out to see your property and will be happy to provide you with this information.