Have you ever heard of someone asking for a CMA of their house? Do you know what it is? For those of you that don’t know…a CMA is a Comparable Market Analysis. When a seller is getting ready to sell their house or wants to know what their house would sell for on the market today, they have a Realtor® prepare a CMA for them. This is a free service from Realtors®. The following are the steps I take to prepare a CMA…
1. Look up the property tax record of the homeowner and make sure it belongs to who is asking for the service. The property tax record will also give me the year that the house was built, the breakdown of square footage and the last transaction date (this usually tells me when the homeowner bought the house).
2. Go to IndyGov.org/gis and get an aerial view of the property. This shows me where the house is located in the community (location, location, location…), if the owner has any amenities like a deck, fenced yard, swimming pool, etc. The aerial will also tell me if the house is on a cul-de-sac, corner lot, next to a busy street or railroad, next to a factory or in the perfect community location.
3. I then go to the MLS system and look for like houses (same/close square footage, bedrooms, baths and amenities) that have sold in the community in the past year. This tells me what buyers are willing to pay for the same configuration of house in that community. I try to pick at least 2 houses that are the same or close.
Another method I use is dollars per square foot. First I see what the average dollars per square foot is for all the houses that have sold in the community in the past year. Then I see what the average dollars per square foot are for the above two comparables. If the two figures (community and comparables) are close, I take this into consideration. If the two figures are extremely different, then I look for reasons why or place less importance on the numbers.
4. I also look at withdrawn and expired listings. These are houses that were on the market and the seller either decided to take it off the market or the listing contract expired without a sale. In both cases this could be an indication that the house was priced to high to begin with.
5. Lastly I look at what is currently on the market today in the community. This is your competition. You have to be aware of like houses that are priced above and below the market. Like houses priced above market give you an advantage. Above market pricing means, all things considered, that these houses probably will be the last to sell. Below market pricing means, all things considered, that these houses probably will be the first to sell. You also have to remember that in Pike Township during off season that the list price/sell price ratio is about 97 percent. During season it is about 98 percent. This mean that if a house is priced at $100,000 the seller will be willing to take $97,000 off season and $98,000 during the selling season. In a community where there are only a few houses for sale, pricing to beat your competition is not as important. When the supply is low and the demand is high, houses will tend to sell. If the community has 10 or more houses for sale, pricing to beat the competition becomes more important.
6. By taking the selling prices of the comparables, the average dollars per square foot, the prices of like houses of expired or withdrawn listings and the listing prices of like houses on the market today, I will have developed a “RANGE” of prices. The spread will probably end up between $5,000 and $15,000. The smaller the spread the easier it is to determine “market price”. The larger the spread the more research you have to do.
He is an example:
A homeowner asks me to do a CMA on his 3 bedroom 2 bath ranch home. It has 1,200 square feet and was built in 1999. The community where it is located happens to be a popular one and has a healthy turnover rate (number of houses that sell every year on average).
Comparables
3 bedroom, 2 bath, 1150 square feet, built in 1997, listed for $125,000 and sold for $123,000 ($107/SF)
3 bedroom, 2 bath, 1300 square feet, built in 2000, listed for $130,000 and sold for $125,000 ($96/SF)
Expired and Withdrawn
3 bedroom, 2 bath, 1200 square feet, built in 1999, listed for $135,000, expired after 6 months
3 bedroom, 2 bath, 1350 square feet, built in 2001, listed for $137,000, withdrawn after 4 months
Currently For Sale
3 bedroom, 2 bath, 1200 square feet, built in 2000, listed for $130,000
3 bedroom, 2 bath, 1100 square feet, built in 1998, listed for $125,000
The Range;
Comparable – $123,000
Comparable – $125,000
Expired – $135,000
Withdrawn – $137,000
Active – $130,000
Active – $135,000
Square Footage Price – $125,567 (based on a average square footage price of $101.50 and a list price/sale price ratio of .97)
1200 square feet X $101.50 = $121,800 / .97 (list price/sale price ratio) = $125,567.
$123,000 to $137,000 = $12,000 spread
7. I make an appointment with the seller to see the house. As I tour the house I am taking notes as to what are the good points and bad. If the house had numerous updates, was in great condition and needed nothing, I would suggest that the home be marketed at the higher end of the spread. If the house needed new carpeting, paint and repairs, then I would suggest that the house be marketed at the lower end of the spread. How much higher or lower is a judgment call and depends on how motivated the seller is.
8. I would show the seller all my research and documentation. I would then suggest a market price. Sellers always price their own homes. It is my job to give them as much information as I can to help them make that decision. If a seller thinks that their house is worth much more and I think that I can’t sell it for what they want, then it is my choice to not take that listing and wish the seller “good luck”.
A CMA is not an appraisal. Appraisals in the State of Indiana require licensed Appraisers. Appraisals usually cost about $300 and are much more detailed in information.
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8/11/2010 5:00 PM 