Do-It-Yourself Comparative Market Analysis

By ForSaleByOwner

If you’re a homeowner, chances are you’ve at least wondered about how much your home is truly worth. Maybe you’ve kept an eye on similar homes for sale in your neighborhood, or maybe you’ve gotten an instant estimate online at some point. There are plenty of ways to get a rough idea of your home’s value. Only trouble is, most instant home valuations only focus on part of the equation. To get a more accurate estimate, we’ll help you conduct a comparative market analysis (CMA) from the comfort of your own soon-to-be priced home.

Comparative Market Analysis vs. Appraisal

The most common methods for estimating a home’s value are CMAs and appraisals. Before you dive into a CMA, it’s worth noting how each method differs.

A CMA is an examination of the prices at which similar, nearby homes recently sold. By looking only at sold homes – as opposed to homes that are currently on the market – CMAs provide a factual evaluation of market values in your neighborhood. These are often done by a real estate agent to establish a listing price for a home seller, or for a potential buyer to help guide an offer amount. Most CMA reports do not mention the home in question. Instead, the focus is on what is happening in the local market. It details the value of similar homes in terms of age, condition, size and several other traits. By analyzing this data, you can arrive at the fair market value of your own home.

An appraisal involves analyzing many of the same traits. However, it can only be done by a licensed real estate appraiser who follows guidelines established by the Federal Housing Finance Agency. Appraisals are usually requested by mortgage lenders before they issue a home loan. If an appraisal comes in much lower than the asking price, a lender may not make a loan unless the seller adjusts the price.

Simply put, a CMA is typically done to set an asking price or decide on an offer amount. An appraisal is typically done to determine if a home is worth an agreed upon sale price.

Conducting Your Own Comparative Market Analysis

Although a CMA focuses on the value of comparable properties, you’ll also need to evaluate your own home. After all, you need to know what qualifies another home as comparable.

To do this, create a simple CMA sheet. You’ll need seven columns: location, age, condition, square footage, number of bedrooms and bathrooms, amenities and price. The first row is for your home’s information. Each row that follows is for comparable homes. Here’s a rundown of the information to include and how to identify comparable homes:

Location – In most cases, location is the most important aspect of determining which homes are comparable to yours. Write down your home’s address, then decide on logical “borders” for what constitutes your neighborhood. Some recommend using a one-mile radius to figure out which homes are close enough to be comparable. However, this may not account for factors that greatly influence price, such as a noisy freeway within earshot (which will lower a sale price) or a lakefront property (which will increase a sale price). Plus, if you’re in a rural area, homes may be much more spread out, so a one-mile radius may not be enough. Use your best judgment to designate an area where all location-based factors are equal.

Age – This is straightforward. Record when your home was built so you can find homes that are one or two years apart.

Condition – A home’s condition can be subjective and difficult to quantify, but it’s crucial to note recent upgrades or dated features that can swing a home’s value up or down. The reason most automated home valuations miss the mark is because they don’t factor updates like a renovated kitchen or newly finished basement. When you look for comparable homes, be sure to look at interior photos or research updates that have been made. Record the flaws and upgrades that you think may affect the price negatively or positively.

Square footage – Size definitely matters. For a home to truly be comparable, it should be within 200 square feet of the size of your home.

Number of bedrooms and bathrooms – High atop the wish-lists of many home buyers, the bedroom/bathroom count has a major influence on home value, no matter the size of the home. If you have a three-bedroom home in a neighborhood of mostly two-bedroom homes, that home will be at a considerable advantage.

Amenities – These can include features like swimming pools, sunrooms, even an AC unit. Keep in mind, the cost of adding these features to a home will likely be more than how much they increase a home’s sale price.

Price – In the price column, you’ll write down the sale prices of comparable homes, as well as the price per square foot (more on that in a bit). The last number you fill in will be your own home’s value!

Once you have your CMA sheet prepared, the next step is to find 5-10 comparable homes that have sold in the last 3-6 months, the more recent, the better. In the next section, we’ll cover free online resources you can use to discover these comparable homes.

Home Pricing Trends and Data

Fortunately, researching detailed property information isn’t as tough as it used to be. There are many free, easy-to-use websites available to find what you need in minutes. As you find comparable homes, jot down the details in the appropriate column. Here are a few resources you can reference in your search.

Home search sites – Any home search site that features recently sold homes can get the job done. To make your search easier, use a site that allows you to filter your search by most of the traits on your CMA sheet: location, number of bedrooms and bathrooms, size, amenities, etc. Be on the lookout for home sale prices that are way higher or lower than most of the homes you find. While a home may seem comparable on the surface, there’s probably a reason for the price gap. Pass over the outliers, as they may throw off the accuracy of your CMA.

Local property tax records – You might not know it, but property details and tax information are open to the public. Simply search for your city’s database and you can look up the most recent sale price of homes that are the most like yours. Most databases even let you search by street address.

Federal Housing Finance Agency – This little-known website has two priceless tools for gauging housing market trends and individual home values:

  • FHFA House Price Index – This shows home value trends for metropolitan areas ranging from Akron (OH) to Williamsport (PA). You can check out trends to see where values are headed in your area: up, down or nowhere. This information paints a clearer picture of your local market’s momentum, which helps you know how to pace your expectations.
  • FHFA House Price Calculator – With this tool, you can enter in the purchase price for a house in any metro area and get a solid estimate of the current market value of that house. This is especially useful if you’re struggling to find comparable homes that have recently sold. However, the estimates do not include either the value added by improvements or subtracted by a distressed sale situation, so you will have to take these considerations into your pricing strategy.

Next Steps

Once you have your 5-10 comparable homes, carefully go through all that data you recorded. You want to ensure each home is truly comparable. Are there a few homes that are nearly identical except for a few pricey amenities? Does a home have a rotted chimney or overgrown landscaping? Be aware of differences that can shift a home’s value above or below yours and adjust the price column accordingly.

Next, figure out each home’s cost per square foot. To do this, just take the sale price of each home and divide it by the square footage. For example: if a home sold for $300,000 and is 1,500 square feet, the cost per square foot would be $200. Write down the dollar amount for each home in the price column on your CMA sheet.

After you do that, calculate the average cost per square foot. Add up all the dollar amounts you just wrote down, then divide that sum by the total number of homes on your CMA sheet.  Let’s say you have five comparable homes, and the costs per square foot are $200, $300, $225, $250 and $275. That comes out to $1,250. Divide that number by five, and you have the average cost per square foot: $250. You’re almost done!

The last step is multiplying the average cost per square foot by your home’s square footage. In our example, let’s say your home is 1,400 square feet. Multiply that number by the cost per square foot, $250, and you’ll have your price! In our example, your home’s price would be $350,000.

Congratulations – you just completed your CMA! If you want a quick and easy home valuation instead, check out our Pricing Scout. It’s a free tool that will show you how your home compares to nearby homes based on the number of bedrooms, number of bathrooms and square footage, then provide you with a solid market value estimate.