Understanding home values in your community – knowing what your home is worth can help you decide whether or not to sell, how to price your property for sale, and whether your property is holding its value. If you want an informative report on your home’s value and comparable sales in the community, this is the place to go. Residential house prices are a function of supply and demand, and market value can be characterized by analyzing those factors.
No two homes are alike, which is why pricing a home for sale can be so challenging. You may have an idea of what your home is worth on the open market, but in order to sell it, you’ll have to support your price to buyers with comparables – other similar nearby homes that have sold recently or are currently for sale. To help determine the right asking price for your home, your real estate professional will prepare a comparative or comparable market analysis, or CMA.
The Comparative Market Analysis is a professional report generated by a computer program from your agent’s multiple listing service, (MLS). Your agent puts search perimeters into the CMA program for homes for sale or those that have recently sold that are most similar to your home. This information is sorted according to fields of information such as neighborhood or zip code, number of bedrooms, number of baths, age of the home, square footage, price range, sold dates within 3-6 months, and other data. The program then creates a report that tells the agent which homes most similar to yours have sold recently and which homes are for sale.
•Similar square footage – Appraisers compare homes based on square footage. Larger square-foot homes are worth less per square foot than smaller square-foot homes. The variance among a group of median-priced homes ideally should not exceed more than 200 to 400 square feet, plus or minus.
•Similar age of construction – Ideally, the age of the home (the year it was built) should be within a few years of other comparable sold homes. Mixed-age subdivisions are common. If your home was built in 1980, say, and brand new homes up the street are selling for more, you cannot command the same price as a new home.
•Similar amenities, upgrades and condition – Appraisers will deduct value from your home if other homes have upgrades and yours does not. A home with a swimming pool will have a different value than a home without a pool. A completely remodeled home is worth more than a fixer. Homes with one bath are worth less than homes with two or more baths. Deferred maintenance will count against you.
•Location – Everybody knows that real estate is valued on “location, location, location,” but have you considered what that means? A home with a view of the ocean, for example, is worth more than a home facing the canyon. Homes located on busy thoroughfares are worth considerably less than homes on quiet streets. Compare your home to those in similar locations.
As a pricing tool, the CMA has some limitations. For example, it can’t tell you why some homes sell above or below the market average. There are features about any home that can’t be quantified by a Comparative Market Analysis, but you can read through each listing in the report for clues for why a home sold for more or less than the market average. Between identical homes, one property may simply offer better drive-up appeal or is in better condition. Clutter, dirt, overcrowded closets, pet odors or too much furniture can overwhelm buyers and cause them to view a property negatively, which will influence the price they’re willing to pay. To avoid this, be sure you are staging your home to sell by simplifying your space. You can sometimes tell from pictures on the CMA if conditions made a difference in a home’s selling price.
Also, buyer and seller motivation can’t be quantified. You don’t know why a seller agreed to take less for their home or why a buyer paid more for another home. Family problems, corporate relocations and other reasons all play a role. What you can learn from the CMA is how long the home took to sell. If it was quick, the seller was highly motivated. For these reasons, your real estate professional may suggest that you disregard the highest and lowest sales price in a CMA before choosing your listing price.
As you’ve lived in your home, you’ve made repairs and improvements that only you know about. Your real estate professional can help you look at these costs realistically. While a home with a new roof is certainly worth more than a home that needs a new roof, you may not get 100% of your investment back in your sales price. What a new roof can do, however, is make your home more attractive to buyers, and more likely to attract offers.
Your real estate professional will suggest a pricing strategy for you based on the CMA, but the asking price will be up to you. You have to consider your home’s condition and your motivation as well as local market trends. Remember, comparables are your home’s competition – the homes you use to compare to yours are the same homes buyers will use for comparison as they shop for a home. They’ll choose the home that best suits their needs and what they perceive to be the best value in price, location, and condition.
It also helps to have a basic understanding for what drives home values. When you bought your home, you bought it for its inherent value. Inherent value is what attracted you to the house in the first place: architecture, quality of construction, landscaping, even just how the house felt to you. But property value, or market value, depends on many other factors:
– Neighborhood: A neighborhood that is attractive, safe, and well-located usually results in stable or steadily appreciating property values.
– Schools: Good schools and solid property values go hand in hand (Laguna Beach, Newport and Laguna Niguel have California Distinguished and Blue Ribbon Schools).
– Amenities: Beaches, Golf Courses, Parks, shopping, libraries, and other amenities can enhance property values, particularly when within walking distance or close by.
– Transportation: Whether it’s public transportation or a nearby freeway, easy access to transportation can be a plus for property values, especially if you need to drive to a job or the grocery store.
– Zoning and planning: Property values can be positively or negatively affected by zoning decisions and community development plans.
– Indirect factors like Economic changes: A rising economy lifts most home prices and boosts sales; a depressed economy carries home prices and sales down with it.
– Demographic changes: Home prices in California continue to grow steadily as waves of new residents compete for a limited supply of housing.
– Perceptions: Negative or positive, real or unreal, perceptions can drive property values into the ground or into the stratosphere. It’s important to know where your neighborhood stands.
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