| p>In Economics, "value" is defined as "the | | | | I study active comps to learn about what is not |
| maximum price that a decision-maker is willing to | | | | selling. I look for comparable properties that have |
| pay to obtain a good." In other words, something | | | | been on the market longer than average, for |
| is worth what someone is willing to pay for it. | | | | clues that tell me why they are not selling. Some |
| However, before you give someone the | | | | need renovation, some back up to major streets |
| opportunity to place an offer on your property, | | | | and so forth. I'm particularly interested in the ones |
| you want to establish a guideline. You have to | | | | where I find nothing wrong because they indicate |
| come up with a number that feels right, and at | | | | that the price is what is wrong. This gives me an |
| the same time, establishes a realistic starting point. | | | | idea of what price is too high. |
| Establishing that initial price tag or "value" requires | | | | It is important to know that we are primarily |
| careful research combined with educated | | | | concerned with comparable properties in the |
| guesswork. Let's explore one of the most popular | | | | same subdivision as where the subject property |
| ways to best establish that initial value. | | | | is located, with the same square footage and |
| A Comparative Market Analyses or CMA | | | | amenities and ideally, the same floor plan. If we |
| By far the most commonly used method is to | | | | can't find anything within the same subdivision we |
| contact a local licensed real estate professional | | | | can venture out to find the next best thing |
| and ask them to give you what is called a | | | | possible. |
| comparative Market Analyses or CMA. Most real | | | | Now that we are armed with all this new |
| estate agents will do this for free, as a service, | | | | information it should be fairly easy to establish an |
| with the prospect of earning your business. You | | | | initial sale price. Keep in mind that value is |
| have to understand that a CMA is just an opinion, | | | | subjective, and it is okay to apply some guess |
| but it will be in the ball park and give you that | | | | work. As you proceed further down the pipeline, |
| initial value you are looking for in order to help you | | | | after accepting an offer, the buyer's lender will |
| set a price point. | | | | order a formal appraisal. |
| Here is how it works | | | | The number that appraiser comes up with is |
| In large part, residential real estate values are | | | | mostly the number the lender's underwriter will |
| established by comparables. When a property | | | | approve (there are exceptions). If both you and |
| similar to yours sold for X amount, it can be | | | | the buyer still agree to move forward with the |
| assumed that your property will be worth | | | | sale, the appraised value becomes the official |
| approximately the same. So, in order to come up | | | | value of your property at the moment the sale is |
| with a value, we pull comps (comparables) we are | | | | recorded. In turn, you are a closed comp. |
| going to look at three segments of the market: | | | | If this method is not satisfactory to you or if |
| closed comps, pending comps, and active comps. | | | | your property is so unique as to where it is |
| Let's explore each one; | | | | practically impossible to find comparable |
| Closed Comps | | | | properties, it is recommended you hire an |
| Closed comps are the ones that carry the brunt | | | | appraiser and get a formal appraisal. |
| of the weight in a CMA. They are established, | | | | Formal Appraisal |
| recorded history. It is important to find as many | | | | Appraisal is defined as follows: "An estimate of |
| comparable properties as close to the subject | | | | the market value of a piece of property by a |
| property as possible that closed as recently as | | | | qualified appraiser." An appraiser is the professional |
| possible. Then through careful scrutiny, organize | | | | who can best give you an accurate estimate. |
| them in order of priority. The one that is closest | | | | Keep in mind that when a property is appraised |
| in proximity and most comparable to the subject | | | | by three different appraisers, most likely three |
| will carry the most weight. | | | | different values will result. If money is not an |
| Pending Comps | | | | issue, and you want to be as accurate as |
| Next, establish a list of pendings in the same | | | | possible, get two appraisals. If they come in within |
| manner as with the closed comps. Pendings do | | | | 10% of each other, average them out and you |
| not carry as much weight as closed comps | | | | are good to go. If however, they do not come in |
| because they have not yet happened, and it is | | | | within 10% of each other you need to get a third |
| not known if they are going to happen. Also the | | | | appraisal and average out all three. Be aware that |
| actual sale price is unknown until it is recorded and | | | | appraisals can be pricy. At the time of this writing |
| becomes public record. The reason pendings are | | | | the average price for an appraisal is about $300 |
| important is twofold; First, they give you an idea | | | | to $450. |
| of where the market is going. For example, if the | | | | When you are ready to sell your property and |
| pendings are lower in price then the closed comps | | | | you have established your initial value, it makes |
| you could assume that the market is trending | | | | good sense to test the market. Put your |
| downward and vice versa. Secondly, the pendings | | | | property for sale at a price slightly higher then |
| will soon become closed comps. | | | | what you think is acceptable, you never know. |
| Active comps | | | | |