Buying a home is often the most significant financial transaction in life; at least until the next home purchase. With most mortgages financed at a fixed interest rate over 30 years, it’s also a transaction that’s going to be a part of life for a long time. If there is a tool or strategy that can help a homebuyer to negotiate a better deal, why not use it?
You may have to suggest this strategy to your buyer agent, as many do not use it. It’s commonly considered a seller side tool to determine the listing price for a home. The Comparative Market Analysis (CMA) is a process that uses recently sold prices for similar homes to estimate the amount at which to list a home. Here’s are the high points for how it works:
- Recently sold prices for similar homes in the same neighborhood are gathered, usually three to five houses.x
- The sold dates should be as recent as possible to avoid using outdated information not relevant to the current market.
- As some of the chosen comparable homes (comps) are not identical in size and features to those of the house to be listed, the listing agent adjusts the sold prices to bring them closer to what the home would have sold for if precisely like the home to be listed (subject home).
- Once adjustments are complete, the agent computes the sold price per square foot for the homes and averages them. The agent then multiplies the average price/square foot of the comparable homes by the square footage of the subject home, and this yields the estimated list price.
Now that you know the basics of the CMA, why is it something a buyer would want? The result of a CMA is dependent upon the selected comps. Different agents choose different comps, and there can be good reasons for doing so. If your buyer agent completes a CMA, it could yield a different value for the home, perhaps in your favor. If it produces a higher value, then maybe you’re already looking at a bargain.
The most important reason for having your buyer agent calculate a CMA for you is dependent upon how long the home has been on the market. If homes are selling quickly, the market evolves quickly, and the value of the property could be significantly higher or lower than when the listing agent completed their CMA. Either way, it’s useful information for the buyer. Seller agents can get behind a market and not be updating their CMAs for their sellers.
If you’re shopping for a buyer agent, check their information or website to see if they mention they provide a CMA as a part of their buyer services. If speaking to one, ask if they will provide one and let you see the comps they select. You could be very happy with the advantage you gain from the result.
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