You have probably heard about comparables or comps especially if you are trying to sell or buy a home. Basically it is a real estate appraisal term used by agents to look at properties with characteristics that are similar to the one you want to get a mortgage loan for. Comparable sales are those that most closely resemble your home. So agents will select the homes that are most identical to your home in size, shape and condition.
How it works is that a real estate agent establishes the value of a home or property through market analysis or, by a licensed or certified appraiser or surveyor. As in the case of using method used in performing a real estate appraisal such as in the condition of sale, financing conditions, market conditions, locational comparability, physical comparability.
As you are probably aware the comparables are the samples that are drawn and measured, this is how they come up with the estimate of value also known as an opinion of value.
The goal is to get a single best estimator, but when the market is in a state of change the appraisal process must rely on multiple simultaneous approaches to value, so the judgmental reconciliation used to arrive at the appraiser's opinion will require comparable data for the appraisal approaches such as the cost approach, sales comparison approach and income approach.
It is important to note that before putting a home on the market or listing with a real estate agent, home sellers must obtain a comparative market analysis or CMA. What these reports do is tell you how much your home is worth that will help with determining your final home price.
A standard comparative market analysis report will contain data on active listings, pending listings, sold listings, as well as properties that are off market, have been withdrawn or canceled. Expired listings could show up on an active listing at a new price.
Comparable Home Value Sales
When it comes to examining comparable sales things to be considered include similarities in square footage, most appraisers compare homes based on square footage.
Simply because a larger sqft home is worth less per square foot than a smaller one would be. It has been reported that the variance among a group of median price home should not exceed more than 500 square feet.
Other characteristics would be similarity in age of construction, when it comes to the age of the home, appraisers will look at the year it was built, it is common to find homes within a few years of other comparable sold homes.
As for mixed in age subdivisions of homes built in the 1950s, and then the 1970s. One will find that although in the same neighborhood the home built in the 50s will sell for more than the newer homes.
Due to the value of homes falling in the current economic climate you will find homes of similar amenities, upgrades and condition that will affect the overall price such as in the case of a home with a swimming pool will have a different value than a home without a pool and a remodeled home is going to be worth more than a fixer upper. It also goes for homes with one bath are worth less than homes with two or more baths.
You have heard the saying location, location, location well the same holds true when it comes to real estate, as you are probably aware if a home has a city view it will be worth more than one that is facing a field or a wall. Undesirable locations usually will fetch a lower selling price, which can be good if you are in the market for flipping a home for a profit.
Real Estate Appraisal Methods in a CMA
As has been mentioned earlier things that are usually reported have to do with what the comparable recently transacted under such as arms length, distress sale, estate settlement within the standard of value the appraisal is being performed.
Next there is the question of financing conditions, is the comparable transaction influenced by non-market or other favorable financing terms as in the case of the comparable being sold has a below-market interest rate from the seller then the appraiser may adjust the comparable price by an amount equal to the estimate of the favorable financing.
Some market conditions will include the time adjustment needed for changing prices over time and when it comes to locational comparability two houses in the same neighborhood may have different views which would allow for one to be more valuable than the other.
In the case of physical comparability t is important to notate size, condition, quality, and age. So many agents when selecting properties that they consider comparable to the subject property they will come across sales far above or far below the bulk of the group so they will need to be able to justify why certain comps are not being used in determining the market value and instead pull comparable properties from the target property area or close by to compare homes sold recently in similar construction types.
Home Value Estimates
Comparative Market Analysis Software for Realtors is designed for use by Realtors, Appraisers, and Assessors. Its functionality and formulas result in extremely accurate price point determination. Top of the line software computes the price point scientifically,and it will revolutionize the CMA process. In traditional Real Estate Board software it narrows down the comparables to what they will be, whereas top of the line software can actually take the comparables and provide the basis for CMA analysis.
Cost Approach - estimates the construction cost of the improvements and deducts factors for depreciation, dis-utility, and external obsolescence, the value of the site and site improvements. Comparable data is used to estimate the site value, as well as estimating construction costs.So apparently it means that the buyer will not pay more than the cost to build the property.
How it works is that the cost approach value is the sum of the market value of the land, depreciated replacement cost and the land is valued using the sales comparison approach so that the replacement cost is the cost to build a building of the same quality and functional utility for the target property.
Sales Comparison Approach - In this case the appraiser seeks at least three comparables for the residential analysis,then makes adjustments to the comparables selling price. the selling price of the comparable will be adjusted downward to account for this difference in value.
Income Approach - the use of discounted or capitalized estimates of future cash flows must be estimated using comparable income generating properties such as discount rates and capitalization rates that are estimated using recent sales of comparable properties, with appropriate adjustments to account for differential risk between the comparable and the subject.
Where to find Home Price Comps
If you are looking for house comparables a good place to look is on Zillow they provide free real estate information. So you can search homes for sale, home prices, home values, recently sold homes, mortgage rates, and apartment rentals.
Another place online to find your home value, house values and prices are on Yahoo Real Estate.
You can find the Home Price Comparison Index compiled by Coldwell Banker Real Estate LLC which allows you to quickly approximate how much your home might cost as well as a variety of tips and articles for home buyers and those looking to sell. The.Coldwell Banker Real Estate Home Price Comparison Index Release United States, International Markets is available on their website