The first thing your Realtor will do is provide a comparative market analysis (CMA) of all homes that have sold in the area. Always ask to see prices of homes sold within the last six months. While six months is a reasonable time, focus on the most recent – preferably within the last month. There is no hard and fast rule in a market with a lot of inventory as homes stay on the market longer that they used to. While recent sales are best, there is the danger that most recent sales are often foreclosed homes. While these affect the market significantly, it isn’t always comparing apples to apples – unless the home you are buying is also a foreclosed home. Here are some guidelines to look for when your Realtor provides a comparative market analysis.
- Homes used in a market analysis should be within a half mile radius – or a mile depending on density of the area – unless the home is very unique or in a rural area.
- The comparative homes should be within 10 years of age – younger or older. You wouldn’t compare a new construction to a home built in 1950 etc.
- Sold homes should be within 20% square feet of the home you are comparing. If the home is 1000 sq. ft., comparables should range from 800 sq. ft. to 1200 sq. ft.
- They should be similar, i.e. if your home has a basement and/or garage, the comparative homes should have the same or close to it. The same applies to number of bathrooms and finished basement opposed to unfinished.
- All homes that are being compared should be in the same school district since schools can affect the price. If the radius around the home you selected is near another city, take into account the difference in reputation of the schools to adjust what to offer.
- Your Realtor will arrive at an “average price per sq. ft.” for the final analysis that most comparatively meets the above criteria. Use this amount to multiply the square feet of the home you selected. For example: the average price per sq. ft. may be $75 x 1000 (sq. ft. of the home you have selected). Basic price to offer would be $75,000.
Here is where the experience of your Realtor is essential. He/she knows the market in that area and may be able to provide a recent market analysis of monthly or quarterly price statistics. Your Realtor will recommend a price based on their knowledge of the area and the adjustments necessary to reflect the features of the home you selected. For example, if your home has two baths and all homes sold have only one bath, they will guide you accordingly.
Your offer should include a home inspection. Once your offer is accepted, you will have 7 – 10 days to complete one. Your Realtor can provide names of good inspectors. This is your final opportunity to renegotiate the price if there are significant repairs that you could not foresee when you made the offer. You may still back out of the deal completely if there is extensive damage and/or repairs that cannot be agreed upon with further negotiation.
As a final thought, I find that buyers expect to offer considerably less just because they hear “it is a buyer’s market”. While I have seen a few “low-ball” offers accepted, I have seen many more refused. Your Realtor can tell you how long a home has been on the market, if there have been previous offers and give you their advice. If you are dealing with a bank, it is all about the bottom line and they may be ready to just have it sold. If it privately owned and you really want the home, understand that sellers are not desperate to give it away. While some may be over priced, most know they are competing with foreclosed prices and they must fall in line with current market value.