As discussed in previous posts, pricing your home properly is an art. The ability to list your home at just the price, where it doesnt sit long and you get your asking is very difficult. Coming up with the listing price of your home, is the job of your realtor but it never hurts to do your own research and come up with a ball park price you believe your home should be priced at. For the sake of this post we are going to be discussing the sales price of Single Family Residences (SFR). The reason I distinguised what type of property is because there will be different valuations you use depending on the type of property (ex. Multi 2-4 families you will be using GRM, Commercial Properties 5 units + you will be using Cap Rate.) When discussing single family properties the best valuation tool to use is the Comparative Market Analysis or CMA.
What is a Comparative Market Analysis
A Comparitive Market Analysis is usually a report that is created by a real estate professional for the seller right before your house goes on the market. A CMA will compare similiar recently sold properties to the one that you are currently trying to sell. These so called 'comps" will compare:
Style of property (Ranch, Colonial, Raised Ranch.. etc)
Square Footage
Price per Square Foot
Location
# of Bedrooms
# of Bathrooms
Lot Size
# of Garages
# of Fireplaces
Deck/ Porch
There are other areas of these homes that you can compare but these specific items will be the basis around your CMA. You want to try and only look at properties that have sold in the last 3-6 months to get an accurate reading on what your property has the potential to sell for.
This specific CMA that we are speaking of is only comparing the "bones" or structure of the property. It is not taking into consideration the level of finishes, how well maintained the home is, if the mechanicals are updated (HVAC, Plumbing, Electrical), if the roof is new. There are several other factors that you will have to look at to compare if you will recieve the same amount as your neighbors home who has the same style home with same features but his home is completely remodeled. If you have the oppurtunity to visit the comparables that you come up with this will give you a better idea of price adjustments you have to make.
How to do a Comparative Market Analysis
If you are selling your home For Sale By Owner (FSBO) or you just simply want to get a better look at what your property will be able to sell for in this current market, here is how you should go about coming up with your CMA.
Websites
Some websites on the internet will offer your free information in regards to recent home sales, pending sales or homes that are currently on the market. Since we are not interested in what homes are listed at that havent sold, we want to move straight to the recent home sales and pending sales. This will give us a better look into the reality of what we can get for our current home. Some websites to look at for recent home sales.
Zillow.com
Realtor.com
Movato.com
Ongov.com (or your local county assessor website)
Here you are not looking for the estimates or (zestimates) of what the sites are pricing your home at. These estimates can be off several thousands of dollars (topic for another post), we are just looking at current data.
The problems with these sites is that they do not have the most recent sales information and do not give you the ability to narrow your search down to detailed specifics. Like I said we are just trying to get a good ball park number, to give us some realistic expectations of what we can price our home at.
What to Compare
So we touched on this above, what we want to do here is find homes that have the same structural features as ours, that are in a close proximity and that have sold in the past 3-6 months. See above for the details that we are looking for in regards to our comparable properties.
Property Adjustments
This is a very important aspect of the analysis. It is going to be very difficult to find an exact match of your home that has sold in the past 3-6 months. There are going to be some minor differences in square footage, bathrooms, bedrooms, garages, porches, decks, and fireplaces. This part of the analysis will require a little more research on your end to find out some specifics. What you want to research is how much value an extra bedroom, bathroom, garage, deck, fireplace brings to your home. In my local market of Syracuse, NY the numbers look like this.
Bedroom: 7,000
Bathroom: 6,000
Fireplace: 1,000
Porch/Deck: 3,000
Garage: 1,000- 2,000
Once again these are just estimates, not exact numbers but my making these adjustments based on your own residence you will be able to get an apples to apples comparison and an adjusted price for your home.
How to Make Property Adjustments
For the sake of this post we will call your property you are trying to sell the subject property and the properties you are comparing comparable properties. The best way to explain this is if your property is a 3 bedroom 2 bath home and one of your comparable properties is a 3 bedroom 3 bath home you will make the adjustments like this:
Subject Property Comparable Property (sales price 140,000)
3 bedrooms 3 bedrooms
2 bathrooms 3 bathrooms -6,000
So if the property you are comparing your subject property to has 1 more bathroom you will deduct 6,000 from the sales price to get your new adjusted sales price of 134,000. You will make the proper adjustments for each difference in the properties.
Conclusion
The process of comparing properties in your local market to your property will give you a better idea of what you will realistically be able to sell your home for. When doing your CMA you want to compare anywhere from 3-5 homes to give you the most accurate data. When comparing your properties make sure you make the proper adjustments to come up an adjusted sales price for your property.
*If you are interested in an excel sheet that will make all the correct adjustments for you and give you a adjusted home sales price, please send me an email at hspropfunds@gmail.com and I will shoot you over my version to help you get through this process. You can tailor this excel sheet to your specifics. If you have any questions on how to use the document, let me know and I will guide you through the specifics.