This is Why a Comparable Market Analysis is Extremely Important to Buyers And Sellers

In: Real Estate News

19 Sep 2011

There are only three home for sale in my neighbourhood. One for $649,000, one for $689,000 and another was just listed for $699,000. These three homes provide an excellent example of why it is extremely important for buyers and sellers to obtain a good comparative market analysis. Without knowing what other homes have sold for in the neighbourhood, a buyer could greatly overpay for a home. A seller could also look at other homes for sale in the neighbourhood and price their home based on these other homes for sale, only to sit on the market and not sell.

In the case of the three homes for sale in the six hundred thousand range… The home listed for $699,000 is the exact same model as a home that sold for $575,000 one month ago. Do homes really appreciate by 21% in one month? An uniformed buyer could easily assume that $700,000 is the right price to pay for a home. Without knowing the history of other sold prices, the buyer could overpay.

The home listed for $639,000 is very similar to another home that sold for $450,000 two months ago. This is almost $200,000 more than a similar home for only a few months ago!!

Sellers looking to list in the neighbourhood might think that their home is worth more than $600,000 because there are other homes listed for sale for that price. However, if sold homes are examined, a seller would see that homes actually sell for a lot less.

A comparative market analysis (CMA) is basically an examination of other homes that have sold in the neighbourhood. CMA is just a fancy name for “what did that other home sell for down the street?”. There is very little science involved in this “analysis”. The analysis simply involves basic addition and subtraction math skills. A CMA looks at a similar sold home in the neighbourhood and then either subtracts or adds the value differing features. For example if the home for sale has a finished basement, but the comparable sold home does not, then the cost of finishing the basement is added to the asking price of the home for sale.

The costs added and subtracted are estimated because all renovations and additions are unique and their costs vary. The point of the CMA is not to be 100% accurate. The true importance of the CMA is the make sure that the buyer and seller are informed and educated. It is plain stupid to buyer or sell a home without knowing the price of other sold homes in the neighbourhood.

Buyers and sellers should be wary of bias CMAs. Most CMA’s are preformed by real estate agents during listing appointments. If you consider that the point of every listing appointment is to “get the listing”, you might discover why the CMA might be skewed in one way or another. If a seller meets with three different real estate agents with three different price ‘estimates’ of the home’s value, the seller tends to choose the agent who they think will get them the most money. Most CMA’s include three comparable homes. If you are having agents perform a CMA as part of a listing appointment, make sure to have them print out 10-20 recent homes for sale in the neighbourhood. By looking at all the homes sold, you will be able to identify the true market price of your home without relying on a real estate agent to “choose” the comparable.

So if you were looking for a home for sale in my neighbourhood would you pay $650,000 for one of the homes for sale? Or would you look at comparable and determine that a more appropriate price would be $550,000? If you were looking to sell a home in my neighbourhood, would you be asking $650,000 because that’s what other homes were asking (the homes have not the way)? Or would you list your home for $550,000 and have it sell quickly, for a great price?

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