If you’re new realtor here in Canada you’ll quickly learn that offering a free market analysis for prospective clients and their homes is pretty much standard practice for every real estate agent. They’re a show of good faith and a nice little bonus for homeowners who are looking for an experience and knowledgeable realtor who is an expert with the local market. That’s an opportunity for you, and being able to put together a solid CMA for clients is definitely important. The same can be said for ANYTHING that helps you become ever more solidly cemented as a good realtor who’s known as a good choice.
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But back to the topic here, what are the basics of what goes into putting together a CMA for homeowners you’d like to eventually see become your clients? Let’s discuss that now.
Plain and Simple Comparisons
The purpose of a CMA from the realtor’s perspective is twofold; to share valuable information with the homeowner, and equally as prominently to hopefully make them into clients down the road. From the homeowners perspective, however, it’s much simpler. They’d like to know what the value of their home is in comparison to those seen with other similar homes in the neighbourhood that have sold for certain prices.
Accessing sold property records allows the realtor to select recently sold properties that are similar to the subject property and in the same geographical area. Comparing these properties is only just a start, as you need to adjust for feature differences, and the realtor should always make explicitly clear that this CMA is only an estimate of the value seen for the subject property. Keep in mind that the best realtors will always be just fine with doing a second different CMA for a seller or a buyer.
A second CMA would include comparisons to currently listed similar properties in the area. The same process would be used, but using only currently listed properties. This is smart because it allows an assessment of the current competition, and may highlight increases or decreases in the estimate based on the sold properties. And of course you can be certain your initiative in providing a second CMA will put you in a very good light with the homeowners.
Quality of Comparable Selections
A crucial part of any CMA’s accuracy and one where you really need to do your homework to make sure you’re in the right with it is determining market value based on a selection of the best comparable properties. It’s true that choosing even one different comparable out of three or four homes taken into consideration can result in very different valuations. You want to have a CMA based on the best comparable properties, and for two reasons.
First, it ensure that there’s very little chance the homeowners will be disappointed when finding that there home has been overvalued in the CMA. Second, the lower value that will come with may end up leading the home to be listed at a price that eventually is exceed in the sale price due to competition amongst buyers who see more value there.
How that will appeal to homeowners needs no explanation!
Considerations When Choosing Comparable Properties
- When the property sold: Homes that sold more than two or three months ago are not good comps, especially in fast-moving markets. The more recent the sale of the home being completed, the less likely it is that the market has shifted enough to make the properties’ sold prices less relevant to the market analysis you’re preparing.
- The property’s location: The most ideal situation is that the home is in the same neighbourhood. When that’s not possible then the next consideration is locating comparable homes in the same suburb or in a next-door neighbourhood. This is nearly always possible, at least in large urban / suburban centers. In more rural areas there’s a lot more leeway with comparative properties used.
- The home’s characteristics: This is pretty straightforward – what number of bedrooms? Baths? Overall square footage of the home? Size of the lot? The homes you choose as comparable homes should be as similar as possible with regard to these considerations. It’s rare to find ones that match exactly, so choose the ones that come closest.
Quality of the Adjustments
You need to also keep in mind that you must tailor your CMA numbers to compensate for differences in the structures. A realtor will understand the need to make adjustments when weighing the sold prices of the comparable homes to those being considered for the subject property.
An example; The prospective client owns a 3 bedroom, 2 bath home with a two-car attached garage, and 2500 square feet of living area. You’re tasked to find three or four comps with all of those features at approximately the same numbers:
- One comp only has two bedrooms. You can assume that it would have sold for more money with three, so you can go ahead and add some money back to its actual sold price to adjust it to having its 3 bedrooms. The same approach can be used for baths and garage spaces.
- If it is the opposite, say three bathrooms to the subject home only having two, you’ll go ahead and subtract the value of a bathroom from the sold price as you work out an approximate selling value for this comparable home.
- Generally, square footage calculations aren’t touched until you do your calculation final.
Once you have adjusted the comparable homes sold prices, then you’ll divide each sold price by their square feet to get an exact sold price per square foot. Next, average those for your three or more comps to get one average value per square foot that can be applied to all of them as a ‘housing average’ for the area. Then you simply multiply that by your subject home’s square footage to arrive at an estimated current market value.
These are the basics of putting together a CMA, and there’s plenty more to be learned – from your real estate brokerage colleagues most likely.
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