Real estate is a lucrative business to say the least, but for any profitable investment, there lies much due diligence and research behind the financial outcome. Smart investing is not about luck, it is about how much time and effort was invested to find a positive cash flow property in a prime location. Whether it is selling a home or buying a home, it is imperative that real estate investors conduct comparative market analysis (CMA) to get a sense of the property’s estimated value before sealing the deal. Shopping for houses without running property inspection and real estate market analysis is not advised, and real estate agents perform comparative market analysis for their clients to determine the value of a property by finding recent comparable sales, or real estate comps, within the same area or vicinity of the prospective property. CMA is an estimated valuation based on homes currently listed as well as recently sold.
CMA: Real Estate Comps Are the Way to Go
In order to find a competitive price on a real estate property, investors take a look at real estate comps from recently sold properties with similar characteristics, such as location, size of the house, number of bedrooms, etc.
The key criteria is to select the most identical properties in terms of size, shape, and condition which includes but is not limited to:
- Comparable square footage. Larger square foot real estate properties are worth less per square foot than smaller square foot properties.
- Comparable construction age. The age of the property should be within a few years of other comparable sold properties.
- Comparable amenities, upgrades, and condition. Upgrades play a huge role in increasing the valuation on the property. For example, a home with an outdoor pool will have a different valuation from a home without one. Also, delayed and accumulated maintenance will drop the estimated value on the home.
- Location, location, location. Homes in prime locations and situated in a cosmopolitan city will have a higher valuation than a home in a run-down neighborhood. Make sure to find real estate comps in similar neighborhoods under similar conditions and quality of life.
Conduct Comparative Market Analysis Based on the Following Listings
1. Current Running Listings
Find similar properties that are currently for sale. Essentially, these properties are in competition with your property, and you want to make sure your price is just as competitive or better yet as the highest price that will still make it competitive in the housing market. One thing certain: CMA valuations are only an estimation and not necessarily indicative of the fair market value. The asking seller price may or may not be aligned with the market value until it sells, and in a buyer’s market, most sell for much less. Mashvisor gives you a fast access to all recent listings across the US in an instant. You will be able to decipher real estate comps from all the current listings by filtering the city, area, or neighborhood of choice.
2. Pending Listings
Homes pending to be sold and/or under contract give a general indication of the market value. They are not considered real estate comps because they have yet to be sold, and real estate investors will not be able to know the final price until the transaction closes. With this said, however, pending listings give real estate investors a good hint of the discrepancy between their home’s price and the pending price. The bigger the discrepancy between the prices, the longer it might take for the home to sell.
3. Recently Sold Listings
Sold properties within the past six months (or earlier) are your real estate comps. These are the definite comps you will aggregate to come up with your valuation on your home. Real estate comps is the market value: the closer your appraised value to the market value, the more competitive the price which will give you the most leverage.
4. Expired Listings
Expired listings are homes which were priced way above the market value and in turn were taken off the market. Expired listings are a good warning for current listings unreasonably priced and/or not aligned with the market equilibrium. These listings can help you mitigate the risk of prolonging the sale of your home; if your asking price is as high as the expired property, your best bet is to amend the price accordingly.
Reliable Sources for Real Estate Comps and Analytics
1. Mashvisor for current running listings
2. The Federal Housing Finance Agency for recently sold listings, including all home mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration
3. The FNC Residential Price Index for market data and trends available for cities across the country
Real Estate Comps Are Not Set in Stone
It is important to emphasize that a comparative market analysis is an estimated valuation, and it does not determine the market value. You can never be 100% accurate with the real estate comps you aggregate, but nevertheless, they give you a better range of where your price should fall. Moreover, conducting a CMA is only one part of the research you should be doing in order to arrive at a more concise appraisal regarding your investment property. There are many different unique traits of any real estate property that can affect its market value, irrespective ofrecent sale comparables. You should factor in other criteria to analyze the ROI, including rental income and expenses (maintenance and repair, taxes, and mortgages).
Make a mental note to yourself that real estate comps are only estimates, not appraisals. Conducting a comparative market analysis is only one small aspect of what entails a thorough investment property analysis. In real estate, due diligence is about compiling all the necessary data analytics and information to have the leverage to negotiate a lower price.
Head over to Mashvisor to find your real estate comps in an instant!