Arriving at a listing price is one of the most difficult aspects of selling a home. To facilitate this, real estate agents conduct Comparative Market Analyses, or CMAs. For the purposes of a CMA, an agent pulls together three to five homes that have recently sold and are very comparable to the home that they are trying to sell. These properties are usually referred to as "comparables" or even "comps." Without the MLS, conducting Comparative Market Analyses would be extremely cumbersome and difficult mostly because it would be very time-consuming to identify comparable properties in the area.
When conducting a CMA, a real estate agent or broker turns to the MLS. This powerful database allows them to quickly zero in on local properties that have similar attributes as the one that they are trying to sell. Through the MLS, an agent can select a specific area and search it for recent sales. They can then limit their search to homes that have similar attributes, including total square footage, size, age and total beds and baths. The MLS makes it easy to kick-start a CMA, so agents have a lot less legwork to do for clients.
Although the platform is a great springboard for a CMA, it isn't and shouldn't be the only resource that is used. When agents rely only on data from the MLS for comps, they miss out on small details that could dramatically affect the overall value of a home. Therefore, agents usually start a CMA by searching the platform. In most cases, they then go and physically look at the comps in person. Many times, they try to dig deeper by searching for documents about the history of each home. The more information that an agent can get, the more accurate and useful their CMA will be.
Comps: What are They, and How are They Calculated?
If you've ever sold a home before, you have probably heard the term "comps" bandied about quite a lot. Here at Boston City Properties, we believe that informed home buyers and sellers are more successful, so we are here to bring you up to speed about comps and how they work. Without using comps, figuring out an ideal listing price for a home would be practically impossible. Similarly, comps can be used to get a feel for how much your ideal home will cost. Learn more about comparable sales, how they are calculated and how they are used by reading on below.
One of the first steps in selling a home is coming up with a listing price. This is a bit of a science. If the house is listed for too much, buyers will ignore it. If it is listed for too little, it will raise eyebrows. People will assume that something is terribly wrong for it. Also, underpricing a home causes a flood of interest that really just ends up wasting most people's time. It pays to come up with a great price right off the bat, and the best way to figure it out is by performing a comparative market analysis, or CMA.
When you are selling a house, one of the first things that your agent will get to work on is performing a CMA. This is done to get an idea for how much your house is worth. As the name implies, a comparative market analysis involves comparing homes that have recently sold to get an estimate for the value of the home that you are trying to sell. Comparable homes should be similar to yours in as many ways as possible, including:
· Location - Not surprisingly, the best comps are located in the same general area as the one that is being sold. However, just because two homes are located in the same city, town or zip code doesn't mean that they are in the same "type" of area. When a town or city is large enough, some neighborhoods may be more suburban or even urban in nature while others are practically rural. The best comps will be homes that are located in the same neighborhood, but even then, the areas may not be completely similar. For example, if your home is on a busy street, your comps should be homes that are located on busy streets too. If your home has a nice view of a lake or other scenery, the right comps will be located in areas with the same features.
· Age - The age of a home affects its value, so it is crucial to stick with comps that are within a few years of the age of the one that you are trying to sell. Sure, older homes can and should be updated and upgraded through the years, and such work can bring up their value. For all intents and purposes, however, homes that were built during the same decade will be far more similar than homes that are 20 years or more apart in age.
· Size - Another factor that should be considered when lining up comps is the size of the home. It goes without saying that homes that are around the same size are closer in value than homes that vary considerably in size. If your home is around 2,000 square feet, your ideal comps will be around that size too.
· Bedrooms and Bathrooms - While comps for your home don't have to precisely match yours in terms of layout, they should be similar in terms of the number of beds and baths that they have. If you have a two-bedroom home, then, your ideal comps will have two bedrooms as well.
· Condition - Just because two homes are the same age doesn't mean that they are in the same condition. What kind of shape is your home in? Has it been well maintained through the years and updated regularly, or is it showing its age? Comparable homes will be in similar shape. Comparing a home that is updated and well-maintained to one that is outdated and falling apart just doesn't make sense.
· Amenities - This one is a little more subjective, but it also helps to choose comps that have similar amenities as your home. For this, we are talking about things like swimming pools, floor-to-ceiling windows, wine cellars, walk-in closets, gourmet kitchens and heated floors.
· Lot Size - In some areas, lot size comes into play with comparables as well. Good comps will be on lots that are around the same size as yours. This is especially important if your property has considerable acreage because it dramatically affects the value of the home in general.
Market conditions can affect how comps are calculated too. For example, when the market is down, there may be a lot of short sales and foreclosures. These sales can skew comparable market analyses considerably. Skilled listing agents will account for this and adjust accordingly.
Comps aren't just used to come up with listing prices. They are also used when refinancing a home. They are sometimes even used by buyers to get a feel for how much their ideal home is going to cost them. By looking at how much homes they like have been selling for, buyers can have a better idea about what to expect.
Whether you are looking to buy or sell a home, Boston City Properties can help. Our huge database makes it easy for buyers to zero in on homes that suit their needs. While it's not as detailed as a CMA, our search tool lets you filter results by size, price and total beds and baths. We also have experienced real estate professionals around Boston and throughout the state, and we can put you in touch when you are ready to proceed. Stick with us to learn everything that you need to know about buying or selling a house.