If your home is underpriced, it will sell quickly, but that’s not something to brag about if you leave money on the table. If your home is priced too high, it will sit on the market for too long and buyers will lose interest. So what’s the right price for your home? The key to correct pricing is through a Comparative Market Analysis (CMA).
First, a professional real estate agent will gather information about your home. Then, they’ll select comparable recently sold properties (comps) for comparison. The major concerns when selecting comps are:
The comparable homes have sold recently, so prices are up-to-date in a rapidly moving market.
The properties are similar to the home being valued—the same number of bedrooms and baths, similar square footage, and around the same age.
The comps are in the same neighborhood, nearby, or in a very similar neighborhood.
After selecting three to five comps, the adjustment process begins. It is very rare that there will be three to five homes exactly like yours, so some adjustments to their sold prices need to be made. This means adjusting the sold price to reflect differences between the comps and your home so that the comparison is more equal.
If the comp has fewer bedrooms or baths, the value of a bedroom or bath must be added to the comps’ sold price, as the home would have sold for more with the extra rooms.
If the comp has more bedrooms or baths, the value is subtracted from the sold price, as the home would have sold for less if it was just like your home.
This step is more of an art than an exact science, as agents must decide how much a bedroom or bath is worth. Often, they’ll get estimates from appraisers to help. Once the sold prices are adjusted, each home’s sold price is divided by the square footage and an average of those is taken, resulting in the average price per square foot for the comps.
Then there’s one more simple step. Take that price per square foot and multiply it by the square footage of your home to get your estimated list price. This is definitely not a hard and exact number since there are a number of variables involved.
If you want to know your home’s value in today’s market, contact me for a Comparative Market Analysis.