4. Analyze comps
Comps — short for comparable recently sold homes — work for parties on either side of the real estate transaction.
Comps show the sale price of recently sold properties in the same area based on size, condition, and features. Recent comps are best and can help you determine the market value of a property you’re interested in buying or estimate the current value of your property before you list it for sale. While an agent will analyze comps when preparing a full comparative market analysis for your property, you can also find some of this information on your own.
Are comps trustworthy?
Comps are one of the most trustworthy ways to calculate a home’s value because they show the actual sales price of comparable properties. When buying a home, you need to know its market value, so you have a place to start when making an offer. When listing your property, you want to set the best listing price to attract buyers.
However, when a house is located in a rural area where there aren’t many recently sold listings nearby, or when a house has unique features that aren’t reflected by other homes in the area, finding comps can be more time-consuming.
5. Ask an agent to prepare a CMA
A comparative market analysis, or CMA, is a comprehensive assessment of a property’s value prepared by a real estate professional who is familiar with your market. A CMA starts with the sold prices of recent properties in an area within a specific period, usually between six and 12 months. It then compares those properties to the home you want to buy or sell to determine an accurate value for that home.
CMAs are detailed reports that consider variables such as location, size, condition, amenities, number of bedrooms and bathrooms, lot size, year built, renovations and interior improvements, and so on, to help determine a property’s market value.
Most agents are happy to prepare a CMA, often free of charge, to win your business. You can request CMAs from more than one agent, too. An agent follows these steps to put together a CMA:
1. The agent or broker finds a minimum of three comps in the area. If there are no recent sales, they may use expired or unsold listings.
2. Any differences between the subject property and the comps are documented and reviewed.
3. Any differences are given an estimated value (price). For example, an agent may value an extra bedroom at $4,000 in your market.
4. The agent or broker gives you an estimated price range based on all of the criteria so you can determine a competitive offer price or sales price.
Is a CMA trustworthy?
The trustworthiness of a CMA depends on the expertise of a local broker or agent in compiling a detailed report examining comparable properties. Unlike when you pull comps yourself, the agent adjusts for additional features or condition, which makes a CMA a more dependable way to determine a property’s value.
“The key here is that an experienced agent is going to walk through your home and identify pros and cons,” says Stives. “Those pros and cons impact what buyers are going to think about the value of your home,” which means that a CMA is a more comprehensive view of its value.
6.Evaluate a BPO
A broker price opinion, or BPO, is slightly different from a CMA or appraisal. Like a CMA, a real estate broker (who typically has more experience than a sales agent) will also consider comparable surrounding properties when deciding on a price for a particular property. A BPO looks at location, any costs to get the property ready for sale, and what it will cost to make repairs.
There are two types of BPOs — internal and external.
- Internal: This involves spending time inside a property to examine the home’s condition.
- External: A broker accesses the outside of the property only. Think “drive-by assessment.”
Both internal and external BPOs are helpful in the early stages of setting the list price of a home. However, some state laws limit the use of broker price opinions in specific circumstances. You can check with your state’s real estate commission, the department of licensing, a real estate broker, or even a real estate attorney about the legality of using a BPO to make financial decisions or to prove a home’s value.
Is a BPO trustworthy?
It depends! This is especially true with an external broker price opinion, which is simply a “drive-by” of the property. However, a BPO can be valuable in the early stages when estimating a property’s value. It’s best to consider a BPO as just one piece of the home valuation pie.
