There are many formulas that claim to provide a fair market value of a home. As in many things, there are the good, the bad, and the ugly.
Here's how we write a CMA.
We'll use a 4 bedroom 2 bath split level home as an example.
- The first thing we do is go to the MLS and run a report on the sold comps (within the last 12 months) in the same town. We search for 4 bed, 2 bath split level houses in the same zip code or town. If we only get a few comps, we'll search for other style homes, such as colonials and/or Cape Cods. Once we get 8 to 12 usuable comps, we'll make side by side comparisons and come up with a rough average. It's really important to only use sold homes and to only compare apples to apples, not oranges!
- The next step for us is to do a Tax Analysis. This takes the tax assesed value of the comps and the land and compares it to the sold price. We use an Excel Spreadsheet to do this. For example a similar home has a land assessment of $84,900 and a building assessment of $85,400 for a total assessed value of $170,300. That same house sold a few months back, for $338,780, for an assessed value to market value ratio of 1.99. We then plug in the rest of the comps and and compute the average ratio of the comps. The last line of the spreadsheet is for the subject home that the CMA is for. We plug in the assessed values and multiply the total by the average ratio and it comes up with "sale price". This method does not take into account condition, location or anything else, therefore on some occassions it produces results that are too high or too low, but it does offer some real statistical analysis of the potential sale price.
- The third part of our CMA is the National Association of Realtors Realtor Property Resource tool. If you haven't used it yet, visit http://www.narrpr.com. You can plug in the address of the subject property select Comp Analysis. Once again, it's critical to only compare sold properties that are similar in size! The great part about this tool is that you can make adjustments to each comp. There is s slider bar on each one, labeled: How Does This Property Compare To The Subject? The slider has 9 positions going from Worse to Better with the middle position being Same. By using this tool we're able to compare a home that has a new kitchen to one with an older kitchen by adjusting the slider. It works great. After all the adjustments are made the RPR will give you a value for the subject home.
We include all three of these methods, including a Seller's Report from RPR when we present our CMA to our Sellers. We will usually average the 3 numbers together to come up with a suggested list price.
However we always reccommend that our sellers have an appraisal done before listing. We even offer to pay for the appraisal if they list it within a certain dollar amount of the appraisal. But that's another blog...