Weekly Objective: To learn basics of generating a CMA.
This week’s schedule is as follows:
Monday: Understanding what a CMA is
Tuesday: Educating yourself about the subject property and the area around it
Wednesday: Using the MLS to do a CMA
Thursday: Making Adjustments
Friday: Presentation Tools for CMAs
Monday’s Objective: Understanding what a CMA is…
What is a Comparable Market Analysis (CMA)? A CMA compares at least three different types of comparable properties in the same neighborhood, to the subject property. They can be:
These are properties that were taken off the market for a variety of reasons. Usually, the reason homes are removed from the market is because the prices were too high. The median prices of this group will almost always be higher than the median prices of comparable sales. However, listings cancel also for the following reasons:
- Seller’s remorse. The sellers decided they cannot part with their home and no longer want to sell.
- Priced too high. Nobody made an offer or the only offers received were low-ball offers, which were rejected.
- The DOM were too long. Agents sometimes withdraw listings so they can put them back as a new listing and fool buyers.
- Repair requests. The homes were once under contract and after the home inspection, the buyer requested repairs which the seller refused.
- Seller fired the agent. It’s not uncommon for unhappy sellers to fire an agent and hire a new agent.
The comparable market analysis serves two major purposes during the listing:
- To establish your knowledge of the market in the prospects’ mind.
- To lay the groundwork for setting a realistic selling price for the property.
You can also use the comparable market analysis when helping a buyer know if home listing is priced too high, low or just right.
Market Value – Market Price – Cost
- Market Value – is an opinion of value based on an analysis of data of comparables
- Market Price – is what a property sells for
- Cost – is the construction cost to build
Misconception – Cost represents market value. This is not true. When clients have done of the following:
- New Construction
They feel like they should get a dollar for dollar return on investment. However, it’s just like buying a new car. The moment you drive it off the lot, depreciation hits the value.
That’s why insurance companies sell “gap insurance” it’s to replace that lost value should you get into an accident as you leave the car lot.
Other Factors to Consider:
- It’s also important to remember that sometimes sellers are barely bringing their property up to market condition through a recent remodel or upgrades.
- It’s recommended that a Homeowner put 1% of the home’s value back into the home each year that they live in it. This not only makes it more enjoyable to live in but it keeps the property inline with the condition required for the current market value.
- There are 2 things that sell houses, price and condition. It’s important to take into consideration the condition of a house vs it’s price. Price and condition work together when determining what the market will pay for it.
- Pick a residential single-family subject property
- It will be hard but go ahead and attempt a CMA on the subject property that you chose
Tuesday’s Objective: Educating yourself about the subject property and the area around it.
There are 5 main resources to research when learning about a property in order to determine its value.
- Tax Assessor
Internet: An Internet Search is as easy as typing www.google.com and doing a Google search on the property. When you do the search you will see the property and its map location on Google Maps. By clicking on the map, Google will open up a large map showing you the property’s exact location with a Satellite View of the property which will allow you to zoom in with amazing clarity. There is a street view feature in Google Maps that lets you jump down to view the neighborhood on a street view level. With the street view you can pan 360 degrees and move up and down the neighborhood to get a look of not only the house, but the surrounding homes and community.
- Look around the neighborhood
- Check where the property is situated
- Is it close to amenities?
- Does it back to a major road?
- Is it in a cul-de-sac?
RPR (Realtors Property Resource): Search the address in Realtors Property Resource®. The search results will give you:
- A valuation estimate and a range that it could sell within
- Recent solds
- Tax, school, owner info
- Photos of the house
- Often times RPR values are close to market value
- RPR is one of the easiest to use most thorough resources that you have access to
- RPR® offers exclusive access to analytics and custom branded reporting tools that can be printed, emailed or texted from anywhere at anytime.
MarketSoldier.com: This tools is tied directly to IMLS data and it updates daily. You can research:
- The county statistics
- Active, pending & sold units, absorption rate, avg price per price range, list to sold ratio, and the average days on market.
- The area statistics
- A more refined look at active, pending & sold units, absorption rate, avg price per price range, list to sold ratio, and the average days on market all specific to the IMLS area where the property is located.
Zillow: It’s important to know a few things about Zillow because this is where the consumer is going.
- Much like RPR, Zillow has a listing for almost every home, whether the home is actually for sale or not.
- If the subject property is listed, that information came to Zillow either because the listing agent or owner input it directly – or through a feature called ListHub. Brokers choose to opt in or out of using List Hub for their firm’s listing inventory or may have a direct feed to Zillow through the IMLS.
- Zillow shows their estimate or their “Zestimate” of a home’s value. Zillow is a bit secretive about how they create their Zestimate, but the only thing they have is information is based on data collected from public tax records. It will include the number of bedrooms, baths, finish sq ft, lot size, year built, last sale date and price, more. Zillow makes market assumptions and either adds or subtracts value based on their perception of trends in market values which affects is Zestimates.
Zestimates – Zestimates will be presented as a specific value, but there also will be a range of value offered and what the change has been for that value in the past 30 days.
It’s good to understand Zillow because your clients are likely looking there. A great way to combat the information provided by Zillow is though Zillow’s own published accuracy ratings.
Zillow’s Accuracy: At the bottom of the main page of Zillow is a link that says “Zestimates.” By clicking on that link you will see a “Data Coverage and Zestimate Accuracy” page for Zillow. Simply click on the States/Counties option below and search for your county or city.
Zillow gives themselves a rating of 1-4 stars with 4 being the best. For example, Zillow gives itself a 4-star rating for Henrico County, but also shows its median margin of error is 6.9%. On a $300,000 home Zillow’s value would be off by an average of $20,700. If you look at Henrico County, a home that was priced 7% high, sat on the market 10 weeks before it sold, while a home that was priced within 3% sold in less than four weeks. One simple rule of real estate is that the longer a home stays on the market, the lower the final sales price will be. Zillow is very upfront about their Zestimate being just a “starting value” in pricing a home. It cannot see inside a home and know what upgrades might have been done to a home and therefore is severely limited in establishing an accurate value.
- Tax records show what the assessed value of the property is. It is only for tax purposes and doesn’t portray real market value though it may be close or within a certain percentage of market value.
- Square footage isn’t always accurate in the tax record even though we use it as a source for square feet. You may find additional square feet by measuring the house. This can change the value of the home significantly.
- To find tax records, go into Paragon/the IMLS and click on the “TAX” tab.
By now you should understand approximate market value, assessed value, Zillow value and have a pretty clear idea of where the house is and its surroundings.
- Attempt another CMA on a different subject property of your choosing
- Go to each of the 5 resources and explore how each one works
- Watch Silvercreek CMA Video (20 min – see below)
- Realtor’s Property Resource
- Tax Records: Login to IMLS/Paragon and click on the “TAX” tab
- Silvercreek CMA Video:
Wednesday’s Objective: Using the MLS to do a CMA
MLS – The best tool: Regardless of where you sell real estate, your Multiple Listing Service (MLS) is the ultimate tool to assist a Realtor in creating a professional CMA. MLS usually will have much more data than public tax records and Zillow because you can actually see pictures of past sales, read remarks, access the past listing and sales history, and contact your fellow Realtors to gain insight on individual sales.
Steps to a successful MLS search:
- Ask the seller if there have been any additions to the property that could change the square footage.
- Search by correct category – single family? Condo-Townhouse?
- Try to stay within 3-6 months back on sold data
- Keep your price range within 15% high and low of your assessed value from Tax Records
- Stay within the same or similar school districts
- Search like numbers of bedrooms and baths
- If possible stay within same subdivision/community
- Stay within 20% plus minus of square footage (not the best category to use)
- Don’t forget the old adage that “less is more.” Too many criteria in an MLS search will limit the number of comparable sales you see. Start with very few criteria and slowly add criteria to bring the number of comparable sales down to a manageable number and to ensure you are getting quality comps. It’s not about the number of comps – it’s the quality of the comps.
Understanding Search Categories: Active, Pending, Sold, and don’t forget Expired
Active – These are homes currently on the market. This is your immediate competition. Examine the listing history to find true days on market, any prices changes, and if the property has been listed by multiple firms.
Pending – These homes are a barometer of the current housing market. The same advice applies as with Active listings. The pended inventory data can tell you how quickly homes are selling now – remember the quicker the sale, the more likely the seller achieved their list price.
Sold – This is your six month history on sales. You must look at these homes and determine which homes an appraiser will use as comparable sales for any future appraisal.
Expired – Most agents forget these comps. Expired homes represent homes that never sold and they can offer a wealth of information into the future of your listing. Was the home too outdated? Was the price too high? Did the home lack central air? These listings are a great insight into why homes don’t sell which is just as important as why homes sell.
- Do a CMA using the IMLS.
- *Note: do not use the “CMA” tab in Paragon. That will bring you to the CMA wizard, we will discuss that feature later this week. For now, do the CMA manually by using the MLS search.
- Need help searching in IMLS? Watch the “Search Fields” Paragon tutorial here: http://paragonconnect.paragonrels.com/videos-landing-page/current-recorded-webinars
Thursday’s Objective: Making Adjustments
Adjusting Value for Property Differences:
- When comparing similar properties, there are always differences. Be sure to adjust your subject property’s value estimate for its differences from the comparable properties:
- Add or subtract value for difference in lot or acreage size.
- Do the same for feature differences, such as bedrooms, baths, garage, etc.
- Look at financing differences that could have influenced sale price. Seller financing can at times result in a higher price paid for a property that is not related to its true value. Remember that these need to be “arms length” transactions. There should be no special situations, family sales, distress sales, etc.
Factors Affecting the Comparative Market Analysis:
- Location: Location is affected by backing up to businesses, on a major street, any hazard that would affect value. (noise 5-7%) Example-high power lines, water towers, apartment building backing to house
- Size: Houses should not vary more than 400 square feet of appraisal property or 20% of total square footage.
- Enclosed patio, even heated or cooled, will bring 25% of the square footage value
- If it is from the original foundation then 50% and if the porches, whether they are screened-in or glassed, only 15% of square footage value.
- The appraisers try to appraise within 5 years in age, and preferable in the same neighborhood. If they cannot find something in the same neighborhood, they will try to stay within 5 mile radius—preferably in the same city or school district.
- Do not compare new construction to pre-owned. Sometimes you find a fairly new subdivision with no comps., this is where you will have to go into another subdivision within the 5 mile radius.
- Try to make sure they are new, in the same city, and same school district if possible.
- Condition: Estimate costs of repairs or improvements that would make the comparable equal in condition to other properties in the area. Some of the conditions are, for example, odors (pet, chemicals, smoke, cooking, and medical), clutter, drive up appeal, and cleanliness.
What can you help do to get the home sold?
- Baths- 1 full bath, 1/2 bath
- Garage- Single car, double carport
- Garage Conv.
- When comparing these try to compare to other garage conversions. If the addition square feet is from a garage conversion, the owner will have a hard time getting it sold.
- The appraiser will likely give $5,000 for the addition, then deduct $10,000 for the loss of the garage. Marketing skills are needed on this, see broker. You may want to offer property with garage being reconverted at seller’s expense.
- Fences- Stockade, Chain Link, Vinyl
- Exterior- Brick, frame
- HVAC- Central Heat, Central Air Fireplace- Wood-Burning, Decorative
- Other Kitchen Equip.- dishwasher, disposal, range, built-ins, microwave, trash compactor, countertops
- Sprinkler System- Front, Back (depending on size)
- Pools- Depends on type, age, normal for neighborhood, above ground, vinyl, gunite.
- Covered Patio- Small, large, or none
- Draperies- Custom draperies
- Finish Out- Tile, granite, wood floors, tumbled marble, travertine, faux finishes
- Extras- Storage buildings, storm cellars, gas grills, decks, fans, wall finishes, storm windows, upgraded light fixtures, electric garage door opener, mirrors, doors, moldings, etc. Ask the property owner to help you price these extras.
- Allow for depreciation—do not use new prices.
- Extras may help a property sell but doesn’t get you dollar to dollar spent usually not more than10%.
- Acreage- Valued by city, lot size and use. Where does house sit on land, can it be subdivided?
- Pick an older property and a newer property:
- Conduct a CMA on each property
- Use what you now know about adjustments
- Adjustment Guidelines for CMAs: https://weknowtx.com/barryhardman/files/2016/10/CMA-Guideline.pdf
Friday’s Objective: Learn about the different presentation tools.
- CMA tools are for presentation not value creation
- The CMA tools out there don’t actually do the work. You have to do the work. Please do not use those tools to generate estimated values
- The best approach is one of education and understanding. Unless you know the area like the back of your hand you will need to immerse yourself into that neighborhood through data to start understanding the property values.
ASSIGNMENT – Explore the different tools:
- Cloud CMA
- Toolkit CMA
- CMA Wizard
- Pick a residential single-family subject property:
- conduct a CMA
- experiment with each of the CMA tools
- CLOUD CMA: http://support.cloudcma.com/customer/en/portal/articles/688579-kick-start-video?b_id=2793
- PARAGON CMA (watch the video titled “CMA Setup”): http://paragonconnect.paragonrels.com/videos-landing-page/current-recorded-webinars
- RPR: http://blog.narrpr.com/video-learning/getting-started-rpr/
- TOOLKIT CMA: http://www.realtytools.com/cma/for-agents/
- CMA Role Play Video:
These graphs are found in ToolKitCMA
Here are 3 slides to help you in your presentation:
- The first graph shows that if the subject property is under or overpriced by just a little bit it can greatly increase or decrease the number of buyers that actually see that property. If they don’t see it they can’t make an offer. If they do see it and reject it because of price, it may be hard to get them to come back (if they haven’t already bought a house) by the time you drop the price enough for them to find it.
- The second graph shows that if you get in the downward spiral of chasing price the seller ultimately ends up netting less than had they started at the true market value. If it takes them 4 to 12 weeks to find the market value sweet spot they would net as much as 3.6% than had it been priced right to begin with.
- The third graph shows that the most activity a listing will get always occurs within the first 2 to 2.5 weeks that it’s on the market. If you aren’t priced right or the condition doesn’t match the price and this time passes it becomes very difficult to sell the property. Different areas have an average days on market that also factors into this equation so don’t get discouraged too fast.