The literal million-dollar question (or is it the $995,000 question?) At exactly what number should we value this home?
Like a Price is Right contestant, the most important part of our job is to name this number. Our clients rely on our expertise, and if they don’t trust the digits, they’re not going to trust us throughout the rest of the process.
This means it’s time for the Comparative Marketing Analysis (CMA). Here, it’s crucial to have the right data. As a real estate agent, it’s not only our job to gather this data, but also to make it meaningful to our client. This means it’s a science and an art.
Many sellers get excited when they see a nearby home sold for a tantalizing price. They automatically think this means their house will sell at this level, too, and they’re only-so-happy to send you the listing as proof.
But, seller and agent, beware! You cannot gauge a home’s value solely by the selling price of a home next door. There are three things we must consider and carefully synthesize to arrive at the appropriate price and then relay the story to our client on how we got there.
Ultimately, as an agent, we must be an analyst and a storyteller to accurately value a home.
Here are the 3 key Components of a Powerful CMA:
1. Relevant Comparables
The key word here is “relevant.”
The problem with equating the selling price of a nearby property with how much your home is worth is that it may be a totally inappropriate comparison. This is especially true if the neighborhood has a broad range of home types, ages, and sizes. The new townhouse with the heated floors might be right next door to the mid-century walkup with the slanted ones. They’re not going for the same price.
It’s also important to look at when the other homes sold. For instance, a home sale in January may look very different from one in September of that same year. It could be the season, the economy, or, you know, a plague. Best practice is to look at comparable homes that sold within the last three to six months (and three would be better than six).
The takeaway here is to find other homes that are truly comparable in location, kind, size, features, and market. Get as close as you can and be prepared to explain why some properties didn’t make the cut.
2. The Numbers
Ok. You’ve found the truly comparable homes. Now it’s time to get down to brass tacks. Most CMAs include a price-per-square-foot comparison. While this is an important data set to include in a CMA, it is not enough on its own to justify a final selling price. It’s a place to start, a range of prices, within which your price will likely fall.
But it can’t tell you the actual number without the all important piece, the third leg in the trifecta of the perfect CMA.
3. Quality Analysis
The reason those cold hard numbers aren’t enough is because most homeowners don’t think of their homes as a line item on a spreadsheet. Their baby took their first step right there in the kitchen! (Just nod and smile.)
When pricing a home, you have to get into the mind of the potential individual homeowner, and consider what is of value to them. One buyer might be willing to pay more for a home built in the early 1900s, even though the amenities are not up to date. Another buyer wants everything new. As an agent you have to play detective to find out what makes your client’s home special and different from its neighboring comps. And you have to remind your sellers that although their baby is lovely, a gem!, those memories are going to move with them. To you, the property must remain neutral.
Wrap it Up and Tie it with a Bow
Once you’ve gathered all the relevant comps, pertinent data, and quality analysis, you will present your case to the client. Some clients might be comfortable with you quoting a price on the spot if you can pull up your research pretty readily. However, most people will want it in writing at some point. Here’s where those storytelling skills come into play — intro, data, conclusion.
Remember: you can only price a home within the moment you are pricing it. The future is the future and subject to change. Present your case, give a range, give them all the data, and then set up a time to chat about what you’ve sent them. If you do it right, they’ll agree, even if it’s not what they wanted to hear.
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