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How to Determine Your Home’s Value with a Comparative Market Analysis

by Katy Byrom
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According to a recent report by HomeLight, overpricing is the number one mistake that sellers make when listing their home for sale. Yet, reaching consensus on what a home is actually worth is easier said than done. 

Often, sellers come to the table knowing exactly how much they need to make in order to pay off their remaining mortgage and still have something left over after agent fees and closing costs are covered. However, a seller’s target number may not always reflect what a buyer is willing to pay, and there’s a definite downside to setting the wrong asking price. 

“Price your home too high, and you risk putting off qualified buyers willing to pay a fair asking price,” says Todd Rosenbaum, a Seattle-based real estate broker with REX. “Price it too low in an attempt to start a bidding war, and you may only get as much as you’re asking for.”

Before listing a property for sale, a real estate agent will run a comparative market analysis (CMA) to determine its fair market value. Using that number as a starting point, they might suggest a few different pricing strategies depending on whether the homeowner wants to sell quickly, maximize their profit, or a mixture of both. 

Whether you are wondering what your home is worth in the current market, or just curious about the process, here is a step-by-step guide to running a comparative market analysis.

What Is a Comparative Market Analysis?

Sometimes called a competitive market analysis, a comparative market analysis (CMA) is a method of analyzing recent home sales in your area to assess a home’s value in relation to comparable properties, or “comps.” 

There are generally two reasons for performing a CMA. The first is to help a homeowner determine a fair asking price before listing their property for sale. The second is to help a buyer get a feel for the market and what a fair offer price would be for a home they are interested in buying.

For sellers, having an understanding of what comparable properties are going for in their area can help them set realistic expectations around pricing, so they can avoid leaving money on the table or having to make major price cuts down the road. For home buyers, a CMA offers the reassurance that they aren’t overpaying, which could affect their ability to qualify for a mortgage if the property doesn’t appraise.

How to Run a Comparative Market Analysis

In order to determine the fair market value of your home, you’ll need to accomplish two things:

  1. Compile comparable sales, or “comps,” for your property
  2. Make pricing adjustments to account for differences between your home and the selected comps

How to choose the best comps

While most real estate agents source comps using MLS data or professional CMA software, the use of these platforms is typically limited to licensed real estate professionals via a paid subscription. Individual homeowners can instead turn to real estate sites like Zillow, Redfin, Trulia, and Realtor.com to enter your home’s address and look for comparable sales. To get the full benefit of these platforms, you may be required to set up an account with a valid email address. Once you log in, you will be able to conduct and save multiple searches based on your criteria. 

To find reasonable comps, you will want to conduct a search of recently sold homes filtered by neighborhood, price range, home type, age, numbers of bedrooms and bathrooms, and overall square footage. This will give you a bird’s eye view of what’s available in your area. Aim to find at least four homes based on the following criteria:

Recency – How long ago did the comp sell?

When it comes to selecting comps, the more recent the close date the better. Ideally, you want to prioritize sales that have taken place within the last 3-6 months — sooner if you live in a particularly hot market like Miami or San Diego. If your initial search turns up limited results, you may need to look a bit farther back. However, sales over 12 months old make it hard to predict with any accuracy the appreciation that has taken place since the home last changed owners.

Proximity – How geographically close is the comp to the subject property?

Ideally, comps should be within the same neighborhood – the closer the better – and share the same school district. If limited search results make it necessary to go outside of the subject property’s subdivision, try to find comps within a half-mile radius that do not cross any major roadways. 

In rural and lower density areas, the closest comps may be from a nearby or competing market. However, homes outside of a subject’s neighborhood should be used with caution, as home values vary largely by geo. If you are having trouble finding nearby comps, it may be better to seek the pricing opinion of an experienced real estate agent or appraiser with a deeper knowledge of the local housing market.

Similarity – How similar is the comp to the subject property?

“An ideal comp is a model match to the subject property,” says Angela Cook, an experienced real estate agent and Regional Sales Manager with REX. “However, in the worst case, a comp has no more than 20% variance to the subject property.” 

In addition to having the same number of bedrooms and bathrooms, a comp should share a similar layout and approximate square footage. So, if you own a split-level ranch house, you should look for houses with a comparable setup. Granted, this is easier to do in a subdivision where homes tend to have similar floorplans. In an area where homes are custom-built, you may need to widen your search or be prepared to make more significant pricing adjustments based on differences.

Other factors to consider when selecting comps

Home Status

When selecting comps, you’ll want to pay attention to the status of the listing and choose those that are already sold to factor into your analysis. Pending, contingent, and active listings can be helpful for gauging market trends, but since the final price of a home isn’t posted until the sale is closed, they don’t make for dependable comps. If a pending or active listing has sat on the market for 90 days or more, then it’s possibly overpriced. Look at the photos to see how it compares to other homes in the neighborhood. 

Home Type

Your comps should be of the same type as your subject property. If you’re not quite sure which type of home your own, here are the standard definitions of each: 

  • Single Family: Homeowner owns entire dwelling and land attached
  • Townhomes (Single Family Attached): Homeowner owns a unit and section of land
  • Condos: Homeowner owns a unit that does not include land
  • Co-Ops: Homeowner owns shares of a corporation providing a lease
  • Manufactured: Homeowner owns a mobile structure that doesn’t always include the land

Home Features

When setting your comparable search criteria, you will want to account for the following home features:

  • Usable Living Space: This should account only for heated and cooled square footage and ideally be within 10% (but definitely no more than 20%) of the subject property. So, if your home is 2,000 square feet, set your filter to look for homes with a range of 1,800-2,200 square feet.
  • Lot Size: Similarly, try to select comps with a lot size no more than 20% larger or smaller than that of the subject. If your property has an unusually large lot for the neighborhood – say it’s a suburban home that is being sold with the adjacent lot – you may have trouble finding comps. In that case, set aside the extra land for now, and focus instead on trying to come up with a fair market value for the home itself.
  • Year Built: The best comps will have been built within 5 years of the subject. This increases the likelihood that the age and condition of major systems such as HVAC, roofing, plumbing, and electric are in line with those of the subject property.
  • Stories: Whether you’re looking at two-story, split level, or single story homes, try to select comps with the same number of interior levels as the subject property. 
  • Bedrooms / Bathrooms: Ideally, a comp will have the same number of bedrooms and bathrooms as the subject property. This is especially important when the subject home has fewer than three bedrooms or two bathrooms. If your home has a half bath, you can choose whether to adjust your search filters to round up or down to the next whole number.
  • Parking: Covered parking has a large impact on a home’s functionality and value. When sourcing comps, try to find homes with a similar parking setup, whether it’s an attached or detached garage, carport, dedicated parking space, or street parking.
  • Amenities: If the subject property has special features like a pool, outdoor fireplace, amazing landscaping, try to prioritize comps that have these features as well. However, keep in mind that the value added by these amenities can vary widely depending on the area and price point.
  • Quality and condition: Apart from the physical characteristics of the home and neighborhood, be sure to pay attention to the property’s condition and quality of materials used in construction. If a comp seems to have sold low for the area or the interior looks distressed, it is possible that the home was a distressed sale (i.e., short sale, foreclosure, “as is,” etc.) and should only be considered if your subject is also distressed. Be sure to look at any photos that accompany the listing or, better yet, visit the comp in person.

Neighborhood features

Try to choose properties with similar neighborhood vibes. If your home is on a cul-de-sac with views of the adjacent greenbelt, for instance, try to find comps offering a gorgeous yard or equally attractive view. Factors to consider when exploring a neighborhood include views, safety, walkability, school ratings, and access to amenities such as a waterfront, parks, trails, public transportation, and groceries/retail. 

Verify home facts with visuals

To verify whether or not a comp is a good match, closely examine the photos and take stock of any differences in the quality of materials or finishes. You will also want to note the presence or absence of certain amenities (like a garden or furnished carriage house above the garage) that might not be “searchable” using the standard filters. Better yet, visit your comp in person to get a more accurate sense of the home’s amenities, construction quality, and current condition. What you see in person may be very different from what is revealed through professional photography. 

Google’s satellite view can give you a sense of a neighborhood’s walkability and proximity to amenities like local coffee shops or bike paths. It will also tell you if a property is on a busy road or near an undesirable feature such as a landfill or industrial site. 

How to make pricing adjustments

In order to determine fair market value from your selected comps, you’ll need to make pricing adjustments to bring your comps in line with your subject property. You’ll do this by adding value for items that your home is missing and removing value for items that the comp is missing. For example, if a comparable property has only one bathroom but your property has two, you’ll subtract the associated value from the comp. To keep track of adjustments, it may help to list each comp and its associated sale price on a spreadsheet and create columns noting positive or negative adjustments for each relevant home feature, such as:

  • Lot size
  • Square footage
  • Stories
  • Construction quality
  • Condition
  • Age
  • Bedrooms 
  • Bathrooms
  • Garage
  • Roof
  • Finished basement
  • Pool
  • Fireplace
  • Wooden fence
  • Updated kitchen
  • Updated bathrooms
  • Updated flooring
  • View
  • Sprinkler system
  • Energy upgrades
  • Finishes (counters, cabinets, lighting, tile or stonework, and fixtures)
  • Neighborhood (walkability, access to trails, busy road, etc.)

Adjustment values will be different in every market and vary both by quality and price point. For example, while quartz counters might be worth an extra $5,000 dollars in a home valued at $200,000, they could be worth as much as $20,000 on a home valued at $1,000,000. 

Real estate agents typically rely on a list of standard adjustment values used by appraisers or access to professional grade CMA tools that make the adjustments automatically. Outside of these tools, you can look at how the presence or absence of certain features affects pricing on otherwise similar homes in your area. 

The accuracy of your CMA will depend on the accuracy of your adjustments. When assigning adjustment values, use your best judgement and, when in doubt, consider seeking a second opinion from an experienced real estate agent or appraiser.

Adjust for home improvements in moderation

When making adjustments based on home improvements, remember that the resale value rarely reflects the original cost. In other words, don’t assume that just because you’ve spent $25,000 on a bathroom upgrade, you can tack on an extra $25,000 to your home’s asking price. While certain updates – like kitchens, bathrooms, and flooring – add more value than others, it’s rare for homeowners to see a 100% return on their renovations. In general, custom upgrades like designer master suites and in-ground pools tend to show poorer average returns than more functional renos that appeal to a wider range of buyers. 

Account for new vs. resale

As a rule, you should avoid using new construction as a comp unless it is going to be a resale. However, if all you have in a newer community is new construction, consider factoring in 8-10% depreciation on the subject property. This is somewhat like car buying. The moment a vehicle is driven off the lot, the value drops significantly, since it is no longer considered “brand new.” Similarly, older homes should be adjusted in price based on their diminished value compared to homes that have never been lived in. 

Avoid assigning value based on the number of stories alone

Whether your home has an upstairs or not is largely a matter of preference, and many real estate agents avoid making pricing adjustments based on the number of interior levels. While two story homes typically allow for greater square footage, they also tend to sell for less per square foot than their single story counterparts. Having equal space without having to go up and down stairs is seen as a plus to many home buyers – especially families with small children or “forever home” buyers who want to age in place. Single story homes also tend to be more energy efficient. Where a single story home can be at a pricing disadvantage is in a neighborhood where most other homes feature two stories on a similarly sized lot. When making adjustments on a two story home, the placement of the master bedroom and laundry room can also make a difference. Consider the type of layout that is commanding the highest price in your neighborhood and adjust your pricing from there. 

Homes with garages tend to sell for more

Garage parking adds convenience and functionality to a home and can generally boost value anywhere from a few thousand dollars to $45,000 or more, depending on location. In Chicago, for example, homes with garages tend to sell for a whopping 38% more than comparable homes sold without them — this according to a recent study by Redfin. By contrast, a garage in Raleigh, NC, adds just 2% to a home’s value. As a rule, a garage is probably going to fetch more value in a densely populated city, where parking is at a premium, than in a suburban setting where garages tend to be the norm. Be sure to value your garage space accordingly.

Pool values vary significantly by market

Pool values vary based on both the market and the price point of the home. In warmer climates and resort communities with lots of vacation rentals, a pool is generally seen as a desirable add-on. In fact, it can actually hurt your home’s value if most nearby properties have a pool and yours does not. However, be wary of assigning too large a value to a pool, especially in an area where most homes don’t have them. Also note that not all pools are created equal. While in-ground pools and hot-tubs tend to add a modest price increase, above-ground pools do not. While there are several mediating factors that determine how much value a pool adds to a home, a recent analysis by Redfin found that, in warm weather markets, a pool added anywhere from $5.87 per square foot (in Las Vegas) to $56.46 per square foot (in Los Angeles).

Avoid taking shortcuts based on square footage

Don’t assume that just because your home has twice the square footage that it’s worth twice the price. A home’s price per square foot reflects its total value, not simply its size, so avoid making pricing estimates based solely on square footage.

Put additional bedrooms and bathrooms in context

On a standard appraisal sheet, a bedroom has an adjustment of about $10,000, while a bathroom will add approximately $5,000 in value. However, this could be dramatically more when jumping from one bedroom or bathroom to two or more. It could also be less when considering the overall square footage of a home. For example, a 1,200 square foot home with three bedrooms is probably going to be a lot more functional, and therefore valuable, than a 1,200 square foot home with five bedrooms.

Analyze your comps

After making your pricing adjustments, you will have a decent range of comparable home values. Your home’s fair market value is probably somewhere in there. If the properties are all highly similar to yours, you can simply calculate the average price per square among them and multiply that number by your home’s square footage. However, if there are homes with significant differences, be sure to give more weight to the properties that most closely resemble your own. This will give you the most accurate starting point for pricing your home. 

It’s worth noting that, just as a listing’s final sale value can’t be known until it closes, a home’s final sale price doesn’t always reflect its fair market value. Maybe the seller was difficult to get in touch with for showings. Maybe an investor swooped in with an offer way over asking price. Or perhaps a major issue was found during inspection. If a home seems to have sold for significantly more or less per square foot than the other comps, there may be more to the story than meets the eye. Be sure to eliminate any suspected outliers when determining the average price per square foot to apply to your home. Also be sure to consult with multiple data sources, which might include an online pricing estimate, a trusted real estate agent, and (for an added expense) a licensed appraiser. 

How to check the accuracy of your comparative market analysis

Compare the results of your CMA with an online pricing estimate. 

If you do an online search for “How much is my house worth?” you’ll see dozens of online home valuation tools pop up in the search results. These tools use proprietary algorithms, or automated valuation models (AVMs), to estimate home values based on hundreds of data points pulled from publicly available data sources and agent-reported property sales. Just remember that the accuracy of these tools varies by platform, market, and price point – with rural and luxury homes tending to yield less accurate results due to limitations on gathering comparable sales. Among the more popular online home valuation tools, Zillow and Redfin boast the most accurate estimates for active listings, while Trulia reports having the lowest median error rates for off market homes. Realtor.com takes a different approach, allowing you to compare home value estimates from up to three 3rd party vendors. 

Ask a real estate agent for their valuation. 

An experienced real estate agent has conducted hundreds, if not thousands, of CMAs and will often provide a free home valuation report as part of an initial home consultation. Keep in mind that they do this with the hope of winning your business, so be prepared for a sales pitch when asking for their analysis. The benefit of consulting with an experienced agent is that they bring a vast knowledge of the local market, including what buyers are willing to pay top dollar for in your area. They will also be able to point out which improvements or repairs may be worth prioritizing in order to boost your home’s value before listing.

Seek the opinion of an appraiser. 

If you’re intent on selling your home on your own, it may be best to solicit a formal appraisal. When estimating a home’s value, an appraiser will generally follow a similar process to that of a real estate agent. This includes visiting the property to verify its physical characteristics and condition, gathering information on the surrounding neighborhood, and comparing the subject property with comparable sales and listings. To verify their assessment, an appraiser will draw from both MLS data and public tax and property records. While an appraisal can easily run you in the ballpark of $400-$500, the level of detail provided in an appraisal report can be helpful in justifying your listing price to both yourself and prospective buyers. 

Use your CMA to set your pricing strategy

Once you have determined what similar homes are selling for in your market, it’s time to set your pricing strategy. Often, sellers will adjust the price lower for a faster sale and stay at or slightly above market value when aiming for a heftier profit. However, a home’s final sale price is highly dependent on the market, which is influenced by a number of factors including inventory, the level of competition among buyers and sellers, and seasonality (with spring and fall tending to be the hottest times to buy). 

What a home is worth ultimately depends on what a buyer is willing to pay for it. Therefore, be as objective as you can when setting your list price, and seek the advice of a trusted real estate professional who can guide you through the process.

Ready to take the next step?

If you’re wondering what you could get for your home in the current market, contact REX for a free home valuation. 

REX’s all-inclusive listing fee starts at 2.5%, with no obligation to pay a buyer’s agent. We also offer benefits – like targeted digital marketing and up to $5,000 in pre-listing home improvements – that traditional agents can’t. Learn why we’re different and give our team a call at (885) 205-0599

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