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What Is Your Home Worth?
When you are interviewing REALTORS? to market your home, youll be introduced right away to a priceless document?the comparative market analysis (CMA.) This is one of the areas in which the real estate industry really earns its keep?by showing you in black and white what your competition is. But like a sword, it is a tool that can cut both ways. You and your agent will use the CMA, among other tools, to determine where your home will stand in comparison to others which are on the market, and those which have recently sold to determine the highest possible asking price. Your buyer will use it to find ways to reduce his or her offer.
CMAs are about facts, which can be qualified and quantified. The CMA is typically designed to give quick capsules of information such as number of bedrooms and baths, approximate square footage, size of major rooms, amenities such as fireplaces and pools, age of the home, property taxes, listing agent contact information and more.
CMAs can include homes that are currently for sale and those which have recently sold. They can go back in time as long ago as a year or a month or week ago. CMAs can cover areas as narrow as one or two streets surrounding your home, or as broad as an entire subdivision.
What is not included in the CMA are those factors that affect perception, and that is the key difference between why one home with identical features will ultimately command a higher price than its twin. Perception alters reality, and this is a crucial consideration in understanding the buying and selling process and the value of the CMA. Much of a homes value will ultimately be determined by the emotional impact it has on buyers. These emotions are based on subjective elements such as drive-up appeal, interior decor or, colors, views from the windows, light, darkness, room flow, and hundreds of other factors.
At the end of each homes information on the CMA report the listing agent will provide a brief statement. This statement is usually a combination of fact and subjective opinion, and will generally cover selling restrictions or selling points. It could be anything from "sellers agent must be present at all showings" to "kitchen and master bath completely remodeled in 1997" to "Charming! Must see!" (Keep in mind that Realtors are salespeople, self-employed and have individual styles of marketing and that some will be better at writing CMA reports than others.)
For privacy reasons the CMA that is offered for public consumption does not list every piece of information that has been obtained by the sellers agent. It will give the what, when, where, but it wont give the who (the sellers identity) and the why (why the home is being put up for sale.) The reasons are two-fold, to protect the sellers privacy and to keep from inadvertently giving the buyer an advantage in a distress situation.
The CMA is clearly a selling tool, but like any tool, it doesnt work very well by itself. It takes a skilled person to be able to use it. For this reason, the CMA will always need to be interpreted by a professional or with complete objectivity by the seller or buyer.
Remember that the CMA is also a buying tool; it is taken just as seriously by the buyer and his or her agent. As you and your agent are going to use the CMA to ask the highest possible price for your home, the buyer is going to use it to find reasons to either choose or eliminate your home, and to arrive at the lowest price possible.
What you should know about setting your price
If youre selling your house, one of the first steps youll take is setting an asking price, a maneuver that requires the ability to find the perfect balance between attracting solid offers and ultimately receiving top dollar.
If youre working with a Realtor or other industry professional, youll probably hear talk of fair market value, which typically means the highest value an educated buyer will pay. Fair market value is usually not the asking price.
Many agents will begin by conducting a competitive market analysis of your house and give you an estimate of the fair market value of your home, which is a range that will fluctuate depending on the housing market in your area and how much similar homes in your neighborhood are selling for.
If youre in a hot sellers market, like many communities throughout California and much of the West, youll have the advantage.
While overpricing to some degree can be beneficial, youll still want to be careful and avoid pricing your home too high, which almost always is nonproductive.
As you work with your agent and set your price, youll want to recognize the factors that may prompt you to raise your asking price too much when it isnt warranted. Some of those factors include:
? Upgrades have been added. While many home improvements will help you recoup a good chunk of your investment, it wont give you 100 percent of what you paid. Also, the more personal the improvement?a swimming pool, a sunroom, purple floors?the less likely it will be viewed favorably by potential buyers.
? The need for money.
? Youre moving to a higher-priced area.
? The original purchase price was too high.
? The seller lacks factual comparable sales to prove what the market value is.
? The seller wants bargaining room (listing more than 1-3 percent above market value actually reduces bargaining power).
? An unnecessary move, so youre not motivated.
On the other hand, if youre in a neutral or buyers market, like in Minneapolis, youll really need to be cautious in setting your price.
Generally, the asking price?the price advertised when it goes on the market?is set slightly higher than market value, usually 1 to 3 percent above market value.
You should assume that negotiation will be necessary to reach an agreement with the buyer. If you price your home too much above market value, youll get fewer showings and offers in which the potential buyer is fishing to determine how low youll go.
Youll want to establish your priority list: Are you more concerned with selling quickly or getting the most money possible? Youll also want to contemplate whether you think the agents suggested price is reasonable and whether youd pay that amount if you were a buyer.
Your agent, as well as friends, relatives, and neighbors, will help you point out your houses advantages and disadvantages that you may not have thought about because youre too close to the house and not as objective as others.
A third party will help you think of your house as a commodity?something with positive and negative selling points. At that point you can decide on a price that you deem competitive and in line what other houses in your area have sold for.