Lessons from the Pros

Real Estate

What is a CMA? How do I know if it’s Accurate?

If someone was to ask you what your home was worth, what would be your answer?

This is what I typically hear, “Well, the guy down the street sold his house for $$$, and my house is much nicer so I’m sure it’s worth twice as much…..” Sound about right?

At this time of year your local realtors will start drumming up business for the spring and one of the things they will offer is a “FREE CMA.” A professional CMA (Current Market Analysis) is a great way to get a feel for the value of a property at a particular point in time.

In this article we’ll look at the basic elements of a CMA for a residential property.

Valuation of property can be broken down into the Tangible and the Intangible.

Free WorkshopStep One – The Tangible: What other properties have sold for in your neighborhood, otherwise known as comps. Along with sold properties you also need to consider expired and current listings. Depending on the market, expired and current listings can provide a better picture of current value. I’ll break down sold, expired and current one by one.

Sold: These are properties that have sold and recorded. Depending on the current market conditions these values are anywhere between at a minimum of 30 to 90 days old or older.

Expired: These are properties that were listed on the market and that have now been terminated without being sold. These properties are typically considered to be over-priced for the market. Expired listings can help you understand what’s out of the price range for the area and also perhaps qualities that are unappealing to buyers.

Current: What properties are currently listed for and current competition.

We now have comps from three different time frames, how do we narrow that data down? Use these criteria:

  • Apples to Apples – find the comp(s) that are most like your subject property, i.e. beds, baths, square footage, lot size
  • Proximity – how close is it to your subject property, the closer the better
  • Year Built – there is a big difference between a home built in the 1930’s, 1960’s or 2000’s
  • Current – finding the most recent comp(s), whether sold, expired or current, creates a snap shot of NOW.
  • Style – similar construction type, i.e. hard to compare a Craftsman to a Spanish bungalow.
  • Feature differences – pool (in some neighborhoods it can devalue a property, in others it’s considered an amenity), upgrades, quality of windows, etc…
  • Financing – a property will often sell for a premium if the financing is carried by the seller. This can be deceptive. Or it could sell for less if sold for all cash.
  • Distressed – if the comp is a distressed sale its sold price is most likely lower than market.
  • Location within the neighborhood – quiet street and cul-de-sacs are more valuable than a house that backs up to the main street.

Step two – The Intangible: things that can’t be judged by data or numbers:

  • Makeup of the neighbors – for example: are there a lot of young families
  • Status of the street or neighborhood
  • Curb appeal
  • How well the property fits into the neighborhood
  • If the property has a lot of natural light
  • Etc…

When trying to determine the value of your personal real estate emotion can often become a factor. What makes your home special and unique to you isn’t what other buyers necessarily will find valuable. That’s why if you are closely involved with the property it’s great to get a third party opinion (i.e. a real estate professional).

The value in a good CMA is the data and the interpretation of that data for your specific market and property.

The internet has given us great access to data, both good and bad. Which data are you using to make decisions? The wrong data can be the difference between profit and loss.

Please feel free to email me questions and also what topics you would like to see covered.

Great Fortune,

Diana Hill

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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