When you’re trying to sell your home, you have to be extra mindful about how you price it. Whether done intentionally or not, overpricing your home is a dangerous move that may cost you a great deal. If you want your home to sit on the market for the shortest time possible without compromising your sale price, you will have to come up with the fair market value of your home.
Some sellers fear that pricing their home at fair-market value is a lost opportunity to get more from the sale, but professionals guarantee that this isn’t the case. The most competitive price of your home is its appraised/fair-market price, and you’re more likely to get multiple offers on your home if you follow it. This will then create competition, and will inevitably drive up the value of your home, which you can then sell at a higher price.
Of course, figuring out the right price for your home isn’t something you have to do alone. In fact, it is highly advisable that you hire a professional to help you locate the perfect amount. Most listing agents will advise you via a comprehensive market analysis or CMA. And, if the CMA is done right, it eliminates the dangers of overpricing and can ensure that both you and your future buyer can agree on a fair deal.
What is a Comprehensive Market Analysis (CMA)?
A CMA is a report containing useful data on recently sold properties within the geographical area of the home being sold. The length of the report can vary widely — some being a concise 2-3 page list of comparable home sales, and others reaching up to 50 pages that include comprehensive analyses and guides.
Although the complexity of the report would depend on the agent’s business practice, an accurate and well-researched CMA will show a detailed comparison of properties in the area, as well as give you an estimate of how much your house is justifiably worth.
What does a CMA usually contain?
A CMA usually contains the following data:
- Active Listings – These are homes that are currently for sale within your area. They are included in the report only for you to be aware of what you’re up against in the current market. If you’re in a buyer’s market where it takes longer than usual to sell a home, it is important to know how high or how low your competition is pricing their homes. The prices of active listings in your area are not indicative of market value, since sellers can ask whatever they want for their homes. Offered sales prices do not dictate market value UNTIL they sell.
- Pending Listings – These are homes in your area that are currently under contract but have yet to be sold. And since they haven’t closed, they still cannot be considered as comparable sales. However, pending listings do indicate how the market is moving. If your home is priced above these homes’ average list price, you may be looking at more time in the market. But if your home is priced competitively within their range, you could expect to get offers after the same amount of time these homeowners have waited for theirs.
- Sold Listings – Typically, these are homes in your area that have closed within the past three months (“comps”), and are the homes that an appraiser will use as basis for appraising yours. These are what you have to look at closely when determining the right price for the home you’re selling. Just remember that these comps are going to vary based on the kind of market you are in. In fast moving markets, for example, sales that are more than two months old aren’t considered a reliable basis anymore. On the other hand, if the market has been slow for a while, comps could include homes sold in the past six months.
- Off-Market / Withdrawn / Canceled Listings – These are homes that have been taken off the market due to a variety of reasons. Most cases are a result of overpricing, but it can also be because of a case of seller’s remorse, unmet contingencies, or seller-agent disagreements. Usually, the average price of homes in this category will almost always be higher than the average price of comparable sales.
- Expired Listings – Expired listings show a list of overpriced homes. Some of them could be grouped with active listings, which means that they’ve probably been taken off the market for a time and listed as a new listing with a new agent.
How are comparable sales determined?
To create an accurate comparison of homes in the market, a real estate agent or appraiser must include all homes in your area that are similar to yours in size (square footage), age of construction, condition, upgrades, and features. Unless your property is in a rural or very low-density area, you may have to check homes that are outside the usual mile radius.
However, not all for-sale homes on the same street can be considered as comps, as some may actually be in a different school or tax district. These nuances can either make them cheaper or more expensive than yours depending on which area is more desirable.
Also, a house that is the same size as yours can be sold for 10 percent more than yours if it has specific features that address a particular need of the buyer. Modern additions such as green “eco-friendly” updates can also affect the value of the sale. Keep in mind: To “compare apples to apples,” you must closely examine the reason why a particular house is priced as it is.