The first question on the minds of most people getting ready to sell their home is, how much is my home really worth?
Homeowners thinking about selling have usually gotten an estimate from a home valuation site like Zillow or even asked a REALTOR® what they thought the value might be. It is important to keep in mind that those numbers should only be used as a rough estimate. Zillow freely admits that their zestimates are on average 8% +/- correct. On a median-priced home in El Paso County, Colorado that is about a $20,000 delta +/-, pretty significant, in our opinion. The Zestimate was never meant to be the be the final word, just a rough idea of what the home is worth.
When a homeowner becomes serious about selling, they have a couple of options when it comes to getting the price right. First, they can order a Professional Appraisal, this is a great way to find out the “baseline value” of the property. Appraisers don’t take into account market trends or supply conditions, so their price is a true value but not necessarily a market value. Depending on the current market conditions (Buyers Market vs. Seller’s Market) the actual listing price could be quite different.
The second method and the one we use when putting a home on the market is called a CMA (Comparative Market Analysis), this is a document that helps us determine the baseline value as well as the best actual listing price of a home.
Ideally, a professional CMA examines the sales data and characteristics of the most similar homes, located within the closest proximity to the “Subject Property” (the home we are trying to price). Essentially we look for identical matches to the subject property, we call these matches “Comparables” (Comps) since this is not really possible to find “Exact Matches”, we filter through these comps in order to find the closest matches possible.
The “Comps” are then put into a spreadsheet alongside the “Subject” property so we can start to apply debits and credits to the “Subject” property in order to compensate for any differences. These adjustments are based on things like:
These adjustments show us where the “Subject” property should sell when compared to the Comparable Solds. This figure now becomes our baseline or the number we start from when choosing a listing price.
There are a number of additional factors we consider before deciding on an actual list price, we will examine these in future articles. Until we have a realistic number to work with or a baseline value, any additional considerations are actually counterproductive.
The first step in any Residential Real Estate sale is setting a baseline value to work from.
If you would like to talk to us about the value of your home, please contact us for a no cost, no obligation analysis.