Fair market valuation
Property appraisal compared to comparative market analysis
Real estate is a highly competitive marketplace. The ideal situation is a home that has been given thorough exposure to the market through advertising (Realtor.ca, etc.) and for which a motivated buyer and a motivated seller agree on a price through negotiation. In real estate, this is considered proof of “fair market value” and it’s the goal that we work toward. You might hear the phrase “CMA” or “comparative market analysis” to answer the question, “What is my home worth?”.
A comparative market analysis is the process of comparing your property features (and benefits) with others that are similar in your area. Not all homes are identical which means as REALTORS® we must use our training in statistics and valuation to determine an asking price that is fair. This step is often misjudged by people trying to sell their own home: they may overlook features and not realize full market value.
A comparative market analysis is not a property appraisal
It’s a good idea to know that a CMA is not a property appraisal. A property appraisal is a valuation that lenders use to determine a loan ratio and to calculate risk. A CMA is a fair starting point for negotiating a sale based on how the propery compares to others in the market at any given point in time. A good comparative market analysis is within a few percentage points of the selling price. In a hot market, we may recommend pricing higher that the spot price this month in order to achieve a sale in the next 30-60 days at the market price at that time. This is called “pricing ahead of the market”. In a slow market, we may recommend a price that reflects the “time on market” or the time it takes to sell a home. If you have to move for work, then a quicker time-to-sale may be more important compared to achieving the highest possible price regardless of the time it takes to sell.
If a home is overpriced, the market may ignore the listing because it’s easy to find comparisons that offer better value to the buyer. A home that is priced only 5% over fair market value may take a long time to sell and may eventually sell at a discount. If a house is on the market for a long time without a sale, the market may perceive it as having problems.
If a house is underpriced, it will sell before it has received proper exposure which is generally considered as a time frame of 30 to 60 days. That has changed in recent years as many properties sell within weeks or days of being listed, due to higher demand from buyers. A home that sells within a week or two is not necessarily underpriced: the market may be very hot and all homes may be experiencing the same time-to-sale. Ask us for an estimate on time-to-sell in your area and for your property type.
Benefits of an accurate valuation and asking price
- Your property sells faster because it is exposed to more qualified buyers
- Your home doesn’t lose its “marketability”
- The closer to market value, the higher the offers
- A well-priced property can generate competing offers
- Real estate professionals will be enthusiastic about presenting your property to buyers
- A property appraisal professional will agree with the selling price and be more likely to give a positive valuation report to a lender
Questions about property appraisal and comparative market analysis? Contact us today for more information.
Find Out What Your Home Is Worth
For a current market analysis of your home please feel free to take advantage of a free home evaluation.