Before a home is put up for sale in the Bay Area or listed with a real estate agent, smart sellers get a comparative market analysis (CMA). Sellers use a CMA to determine how to price their own home.
Setting the right price at the beginning is the single most important thing you can do as a seller, and it requires looking closely at what other similar homes sold for to judge the relative value of your home. This is because the market sets the value a buyer is willing to pay for your home, not how much you have put into it or how much you feel you should get.
What is a Comparative Market Analysis?
Reports vary in size from just two pages of comparable home sales in the area to more than 50 pages. A CMA is
typically compiled by a real estate professional and gives information about homes similar to yours in location, size and amenities that are either on the market now, have sold recently or were listed but expired.
A well-done CMA tells you:
- What homes like yours are selling for,
- How long it is taking for these homes to sell, and
- Their asking price in relation to the list price, or the difference between what a buyer paid and what the seller wanted.
The complexity of the report depends on the agent’s practice,
but a standard comparative market analysis contains the following data:
Active listings are similar homes that are currently listed for sale.
These listings will be your competition, so it pays to see how your home compares. Are the comparable homes in the Bay Area more inviting? Is there anything
that you can do to better compete?
Active listings do not indicate market value because
sellers can ask anything they want for their home, and there is no guarantee these properties have realistic prices.
Pending sale homes are under contract. Because they haven’t closed yet,
they are not a comparable sale. Most listing agents are also unwilling to share information about pending sales, so you will not know the final
sales price until the transaction is closed.
Pending sales can be used to indicate where the market is moving, though.
If your home is priced above the list price for pending sales, you could be looking at more time on the market.
The homes that have closed within the last 6 months are your comparable sales, and these are the sales an appraiser will use to appraise your home for a buyer, along with pending sales. These sales will determine your market value.
These properties were taken off the market for any one of several reasons. In most cases, the homes were taken off the market because they were priced too high. Look at the median prices of this group and you will see it is almost always higher than comparable sales.
Listings can also cancel for other reasons, including seller’s remorse, too many days on the market, requests for repairs or the seller fired the agent.
Expired listings have the highest median price because they did not sell and were most likely priced too high. Some expired listings will show up as active, typically listed by a new agent at a lower price. Sometimes listings expire because the home needed too many repairs or the home was not marketed well.
How to Examine Comparable Sales in the Bay Area
The comparable sales are those that most closely resemble your home, and this is where you should pay the most attention.
Start by looking at the homes on the list that are most similar to your home in the Bay Area in terms of:
- Square footage.
An appraiser will compare homes based on square footage. Larger homes are worth less per square foot than smaller homes. The group of median-priced homes should not exceed more than 200-400 square feet.
- Age of construction.
The age of the home should be within a few years of other comparable homes, if possible. In many neighborhoods, it is not uncommon for homes constructed in the 1960s to be located next to homes constructed in the 1990s. These homes often have very different values.
- Amenities, upgrades and condition.
Appraisers will take value from your home if comparable homes have upgrades that yours does not. A home that has been completely remodeled will be worth more than a home that needs a lot of work.
A home with a great view will be worth more than a home facing commercial property. Homes on a busy street will be worth less than homes on quiet roads. Compare your home’s location in the Bay Area to comparable properties and consider whether you are in a desirable or undesirable location.
If you want to know what your house is truly worth, a CMA is the best way to do it.