After you’ve decided to sell your home, how much will you be listing it for? The asking price can’t be just some arbitrary number that you come up with in an effort to rake in top dollar for your home. Instead, determining the perfect listing price requires careful consideration and a sound strategy.
Identifying what price you should list your home for is actually one of the most critical steps in the selling process. The wrong price can lead to less money in your pocket at the end of the day, not to mention a lot of headaches.
If you overprice your home, qualified buyers that would have otherwise been interested in your home will either not even see it come up on their radar, or will pass on the opportunity to put in an offer. This will inevitably lead to a stale listing and the potential need for a price reduction.
An ideal way to come up with a listing price that accurately reflects the current market is to conduct a comparative market analysis (CMA). Prudent real estate agents will use the CMA as a critical component to their listing strategy in order to ensure the property is priced to sell. The right price will help a home sell quickly and for the most money that the market dictates is fair.
What Exactly is a Comparative Market Analysis?
A CMA is basically a report that contains information which will help identify how much similar homes like yours in the neighborhood have actually sold for, how long they’re taking to sell, and what their sale prices were compared to their original listing prices.
CMA’s will usually detail the following information to help you and your real estate agent determine what the best listing price is for your home:
Active listings – These homes are currently on the market and haven’t sold yet. Their listing prices won’t exactly be the same as their eventual sale prices, and aren’t necessarily reflective of actual market value. However, looking at current listings will help you scope out your competition.
Pending listings – These are listings that are in escrow and are just waiting for certain circumstances to be completed before the sale is final. Since they haven’t closed yet, they really aren’t considered a “comparable” sale. Pending listings are helpful to look at in that they point to how and where the market is moving.
Canceled listings – These are listings that were taken off the market for some reason, including being overpriced.
Expired listings – These listings never made it to a closed sale because they expired. Again, there could be a number of reasons why these listings expired before they were able to sell, including being unreasonably priced.
Sold listings – The final sale prices of sold listings are the most important components to analyze on the CMA. Ideally, you should only be looking at homes that sold no more than six months ago – the more recent, the better. It’s these final sales that appraisers will use when appraising your home. These are true comparable sales that will tell you what the actual market value of your home is.
Important Information to Compare in a CMA
The key to an effective and helpful CMA is the inclusion of listings that are as similar to your home as possible. It would be tough to compare a bungalow backing onto a golf course versus a two-story townhouse near a busy roadway. The differences would be too great. Instead, what you need to be looking at are homes that closely match your own in order to gain a better understanding of what kind of price you should be listing at.
Comparable sales are those that are similar to yours in terms of the following:
Location – There’s no sense in comparing your home to one that’s located miles away. Real estate is based on the premise of location, which is the single most important factor in determining the value of a property. As such, it’s crucial to only include homes that are located in your neighborhood, and even on your street if possible. In addition, consider things such as the view. A home that’s backing onto a ravine will be worth more than one that’s facing the back of an industrial unit, even if it’s in the same area.
Square footage – It’s best to compare your home to those that are roughly the same size. It would be hard to gauge the right listing price of your 3,000-square-foot-home based on the sale price of a home half that size. Ideally, the properties on the CMA shouldn’t be any more than 200 to 400 square feet bigger or smaller than your home.
Similar features and condition – A newly remodeled home will be valued higher than a fixer-upper, just as a home with two bathrooms will be valued more than a home with only one. True comparables are those that are similar in overall condition as well as amenities and upgrades.
Age of construction – A CMA should ideally only include homes that were constructed around the same time as your home, give or take a few years.
How Can a Comparative Market Analysis Sell Your Home?
A CMA is a vital tool to help you pinpoint the perfect listing price and can actually help you sell your home faster and for more money for many reasons.
For starters, you will gain valuable insight into the local market. There could be any number of trends in your market that influence how quickly homes sell and what would be considered a competitive listing price. Finding out how long homes are on the market for before they sell and how much they’re listed at compared to what they sell for can provide you with a lot of great information that you can use to come up with your listing price.
In addition, a CMA will help you better understand buyer behavior in your area. As stated earlier, a CMA will include both the original asking price and the final sale price of the sold properties listed on the report. Comparing these prices will provide you with some insight into how much interested buyers are willing to pay for a home similar to yours, which is important information.
The Bottom Line
It’s a proven fact that homes that are priced right sell faster than those that are unreasonably priced. While the location of your property and its overall condition and esthetics play critical roles in attracting prospective buyers, it’s the right price that will entice them to put in a reasonable offer and help you close sooner rather than later. Listing price is certainly a critical component to the selling process, and the CMA is a key player in determining this number.