Finding the Value of Properties
Did you know there is a straightforward way to estimate out how much a property is worth? Without hiring an appraiser? A Comparative Market Analysis (CMA) can be done by your real estate agent and usually for free. The CMA will give you a good opinion of a property’s value to help you make the best decisions.
Typically, if you are a homebuyer or real estate investor looking to “go it your own” with property estimates, you might be trying to do the following things:
– You check the assessor’s site.
– You look at estimates from some of the leading real estate websites.
– You try to get the seller to give you appraisal data (fat chance!)
– You look at other comparable properties in your area.
When searching for any piece of real estate, whether it’s for a primary residence or investment property, you want to know its value to determine whether or not you are getting a good deal. That’s true anytime you get involved with real estate. Fortunately, if you’re buying a personal residence, the bank won’t lend you money if the appraised value is too much lower than the asking price. The bank gives you a “reality check” in this case. When you’re buying an investment property, it doesn’t work this way. Even if the appraised value is the same as the asking price, it may not fit your cash flow model. You could still negative cash flow with a property you bought at market value if the rent market is too “cheap.”
Of course, the appraisal comes late in the purchasing process. In fact, it shows up during the due diligence phase unless you pay to have it done sooner. You don’t want to hire an appraiser for every property that catches your eye since you could pay $300-400 for every appraisal that’s done.
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Enter the Comparative Market Analysis
A Comparative Market Analysis (CMA), which can be done by your real estate agent or broker, will give you a solid opinion on what the property is worth. This is not only great for selling your house, but useful for negotiating the best deals. In short, it works as follows:
– Find comparable properties in the same neighborhood as the property you want to analyze
– Compare a number of amenities such as:
- Bedrooms, full/half baths
- New appliances, built-ins, raised ceilings
- Carpet, existing tile, brick/stone siding
- Size of garage
- Wood deck, fenced yard, shed
- Size of yard, home sq. footage
– After your comparisons, you will want to deduct or increase the price of the comparables when you find differences.
– Once your adjusted price is determined, average the comparables to get a recommended price range.
Of course this is just a high level overview of what the Comparative Market Analysis (CMA) is about and it is a science within itself. Your real estate agent/broker is more than happy to perform this for you and value each amenity accurately, depending on your target market.
Remember, that a Comparative Market Analysis (CMA) is an opinion of value and not to be taken as an actual appraisal. An appraisal usually has to be done by a state licensed or certified appraiser, so if you get good at CMAs and share the results with others, ensure that they are well aware this is just an opinion and not a real appraisal. In most states, even real estate brokers and agents aren’t allowed to perform appraisals without proper certification, which is why CMAs are a popular substitute. Anyone is “allowed to” do a Comparative Market Analysis but ensure you work wtih a professional to ensure you are finding the right comparable properties and doing the correct calculations. Just because someone will do a CMA for you, doesn’t mean they know the right way to do it!