How a CMA Can Make You Money On The Sale of Your Home
Estimated reading time: 6 minutes
A well-prepared Comparative Market Analysis (CMA) is the first step in understanding at what price a home should be listed and will provide the property owner with enough information to understand the value relative to recently sold and closed properties. It is equally important to focus on some strategies of pricing that take into account the days on market, what an appraisal may bring, and the possibility of multiple offers. This article will explain how each may be impacted whether or not a thorough CMA was presented and followed prior to listing the property.
A CMA is a document that real estate agents develop to help sellers determine a listing price for their home. It contains information about comparable properties, current market conditions, and other information that will help you decide upon a price to offer on the market. When prepared by an agent who understands both how to attract buyers and determine an estimate of the home’s value, the CMA can be a valuable tool to determine a pricing strategy that works best for you, ultimately leading to more profit on the sale of your property.
Unfortunately, many agents focus their attention only on comparing their properties to under contract properties in the immediate area that may or may not have sold for their listed price, or current listings in the area that may not be priced for the market. These types of CMAs often neglect to include information about how long the property was on the market, the sales price compared to the list price, and how many showings and offers or counter-offers were entertained before finally accepting one.
The preparation of a thorough CMA by an experienced agent includes research and analysis of data on comparable properties in the same area that:
- recently sold and closed
- are currently under contract
- are actively on the market
- were listed but did not sell
In addition, it will include information about Days on Market, the percentage of List vs. Sales price, and key comparison features. By examining data on homes similar to yours, an estimate of market value can be made.
The Days on Market is a valuable indicator of a well-priced property because if there are few or no offers during the average time it takes similar properties to sell, the home becomes “stale” in the market and lingers with decreasing activity and prices. The longer the property stays on the market, the harder it will be to overcome doubt in the minds of buyers.
The most important factor in pricing to sell is the “Closed” properties sold in recent weeks or months. These properties demonstrate what buyers were willing to pay in the recent market. The sale prices of these properties serve as primary guides for sellers to position their property to sell and not sit on the market too long while they decline in value in potential buyers’ minds. More importantly, recently closed properties usually are the only properties that appraisers use to determine the appraised value of a property.
There are also “Pending” or “Under Contract” listings that indicate agreement between the buyer and seller on a sale but are not yet closed. A pending property’s list price was sufficient to encourage a buyer to look at the property and then make an acceptable offer to a seller, but we won’t know if the sale price matches the list price until it closes, nor will we know what other conditions or contingencies apply to the accepted offer. The properties do, however, indicate valuable information about what buyers consider to be good home values in the immediate area.
For comparison purposes, but not as an ultimate determinant of the home’s value, similar properties that are “Active” on the market also yield useful data. There are two categories – those on the market for less than 30 days and those that have been on the market for longer than 30 days. The properties on the market for more than 30 days usually indicate that the seller priced their property above the market and should adjust it downward or offer other incentives. Homes similar to yours that have been on the market for less than 30 days, however, are in direct competition with yours for a buyer’s attention, and you will want to pay close attention to their features and pricing.
Another category is “Expired” listings that languished on the market and likely did not sell. These often indicate that buyers were unwilling to pay the seller’s asking price, and the sellers were equally unwilling to lower their asking price sufficiently. Be sure to understand where your property ranks against these to avoid the same fate.
If and when your property sells, it will most likely require an appraisal from the buyer’s lender. By having a sales price closer to the market value, it is more likely that there will be no issues with the appraisal coming in too low or too high. Large differences in lower appraisal values can require further negotiations on the final sales price and/or delays in closing, costing you money and time. To learn more about what options there may be in an unfavorable appraisal, read this article. Also, because approximately 95% of the appraisals performed today arrive at the value being offered, it is critical to estimate what value buyers will put on the property.
Armed with all of this comparative data, sellers can then determine an initial list price more in line with the market. In doing so, the seller helps the property gain recognition among buyers that it’s a property worth looking at. And if you make an informed decision about pricing your home correctly to attract multiple buyers, it will sell more quickly – possibly with multiple offers.
As always, pricing strategies can vary tremendously based on many factors; keeping in mind these important aspects of a thorough CMA, attracting more property showings is the next big step in selling your home. Along with a well-prepared CMA, these articles will allow you to properly price your home according to the supply and demand of homes in your area and make the most of showing your property.
When you are ready, I will use these concepts to develop a well-prepared CMA that will give you the correct information to make the best decision on an initial price position for your home so that it can sell at the highest possible price.