Successful sellers have learned that to price their home accurately, they need to think like a buyer; they need to get inside a buyer’s skin and look at the world through a buyer’s eyes. For instance, imagine for a minute that you are moving to another area of the country, to a city that you are completely unfamiliar with. If you were faced with buying a home in a strange city, what would be your first step?
If you’re like most buyers, you’d probably start your search online viewing listing websites to get a general feel for local home prices. Next, you might narrow your search down to a specific community or neighborhood by comparing utility costs, school reports, and crime statistics.
Like many buyers, by the end of your journey, you may have become so knowledgeable about the market that you can guess, with reasonable accuracy, each home’s listing price before your agent can even tell you. So what happened? As a buyer, you went from being a blank slate with no impression of the market, to having the ability to predict listing prices. The next step for buyers who have found their dream home is to review a competitive market analysis.
A competitive market analysis is a report that compares a specific home, often called the “subject home”, with other homes in a specific neighborhood. This analysis is then used to provide an anticipated sale price or price range for the subject property. Although not formally called an appraisal, the report provides a similar function by giving home buyers and home sellers a clear understanding of the market data that might affect their opinion of value. Because most of these reports revolve around comparing the subject home to several types of similar listings, let’s take a look at the most common types of comparables.
Common Comparison Properties
Active Listings: There are homes that are for sale now that are similar to the subject property as possible in terms of square footage, lot size, age and construction. These homes are an important consideration, since buyers are likely to be viewing these properties in addition to the subject property before making a buying decision.
Expired Listings: These are homes with characteristics similar to the subject home that failed to sell during their listed period. Why look at homes that failed to sell? Because this can often reveal problem areas that sellers may want to avoid, the biggest of which is overpricing.
Pending Listings: These are homes that are currently under contract but have yet to close escrow. Often they can be a great indicator of how the market is trending.
Sold Listings: These homes are by far the most important consideration in any comparative market analysis because they are those that actually closed escrow. Because of this, they demonstrate not what the seller hoped to get, or what a buyer would have loved to pay, but what the home actually sold for.