Property values go down and up, influenced from the current market conditions and the overall market. When a real estate broker lists a property for sale, she wants to determine a fair market value to assist the vendor establish a record price.
Identification
A property sales agent typically adopts a comparative market analysis, or CMA, when soliciting a listing agreement with a potential seller. This also gives the vendor an notion of exactly what a buyer may pay for the property. A common formula to determine this number is the sales comparison approach, which compares the subject land with comparable properties that are sold.
Theories/Speculation
The concept behind the sales comparison approach would be that if you have two equal properties, side by side, and if one sells for $100,000, then the second house should be able to sell for at least 100,000. The revenue comparison goes beyond looking at only one recent sale. It takes into consideration multiple recent earnings, three or more properties. Say four identical houses are in precisely the exact same neighborhood, and three recently sold for $100,000, $120,000 and $110,00. You’d add up the 3 sale costs and divide the total by the amount of comparable properties. In this case, $330,000/3$110,000. In this instance, the average market value is approximately $110,000, with variety of a minimal cost of $100,000 and a high cost of $120,000.
Time Frame
When identifying properties that are sold to use as comparison possessions, it is very important to select those that have sold lately. Theoretically, market conditions might change overnight, or stagnate for ages. However, when selecting comparables, perfect properties are those sold over the previous six months.
Geography
Ideally, comparable properties would come from precisely the exact same neighborhood as the subject land. In a housing tract, where comparable house plans are used, the preferred option for comparables would be comparable home models. Unfortunately, there might not be recent comparables from the neighborhood, which means you’ll have to look beyond the neighborhood. Select comparables from comparable, nearby neighborhoods to get more accurate results.
Characteristics
When finishing a CMA, find three comparable properties with comparable characteristics as the subject land. A comparable property should be near the size of the subject property, within 200 square feet. It also ought to be a similar age, and layout. The challenge is to seek out a recent sale with comparable features.
Considerations
Since no two properties are equal, before adding the selling prices of comparables, those individual costs need adjustment to compensate for gaps among the comparables and subject land. For instance, if the subject property has a swimming pool, then raise the selling price to compensate for the pool. However, if the swimming pool is in poor shape and needs renovation, then lowering the selling price is more suitable. The adjustment is lower than the replacement price of this amenity, and varies by region, local pricing and demand.
Caution
The most difficult aspect of this formulation is locating comparable properties. When some websites post info on sold properties, the data is often inaccurate or obsolete. Realtors typically have access to the most current information, taken from the history data of the local Multiple Listing Service.