Section 5: Preparing a Competitive Market Analysis

Match the appropriate activity to Analyze the Property, Analyze the Market, or Number Crunching. Determine property type (condo, starter, fixer, etc.)

Analyze the Property.

Match the appropriate activity to Analyze the Property, Analyze the Market, or Number Crunching. Is a recent appraisal available?

Analyze the Property.

Automated Valuation Model (AVM)

Computerized method for estimating the value of a property. Often used for mass appraisal purposes, such as reassessment of a city's property tax base.

When preparing a market analysis, several factors can be used for comparability. Which of these would be a good factor to use?

Condition of sale

Other consideration in Comparables

Condition: (Not always easy to tell from an MLS description, so view photos.) A fixer can't be compared with a property that's move-in ready. Style is somewhat less important, but rare styles deserve consideration. Single-family detached homes can't be compared with condos, town homes Busy streets vs. quiet streets Traffic patterns and noise Proximity to schools, parks, amenities Mature vs. limited landscaping, trees Recent upgrades (especially kitchen and bathroom) Outdoor spaces Second living quarters Garage availability and size Curb appeal, including paint color Roof composition and condition Heating source, and age and efficiency of furnace Green features (low-flow toilets, solar water heater, etc.) Financing: If a comparable were a cash sale, you can assume that the sales price is lower than it would have been had it been financed.

Match the appropriate activity to Analyze the Property, Analyze the Market, or Number Crunching. Make adjustments to comparable properties

Crunch the Numbers.

A well-researched CMA provides value to the seller by suggesting a market-driven value for the home that can be adjusted based on

seller's priorities

Subtract from the comparable's property sales price if

the comparable property HAS a feature that the subject property lacks

Add to the comparable's sales price if

the comparable property LACKS a feature lacks a feature the subject property has

Additional considerations in determining applicability of a comparable property for market analysis include

type of financing, whether the property was distressed, condition, curb appeal, style, and traffic patterns.

Analysis of the property includes

whether it's a property in distress and its property type and condition.

Match the appropriate activity to Analyze the Property, Analyze the Market, or Number Crunching. What are vacancy rates?

Analyze the Market.

How Market Data Impacts Pricing Strategy

-A hot market supports higher prices. -Seller motivation impacts pricing strategy.

Determining Market Value (Ex.)

-Because the Arbor Heights comparable is in a neighborhood with a higher value, you'll adjust its sales price downward. -For the Vanport comparable with lower square footage, you'll adjust the comparable's sales price upward. -Because one of the Vanport comparables has a fireplace and the Marcus home does not, you'll need to adjust the comparable's sales price downward.

There are several reasons to tour the subject property before performing a market analysis. These include:

-Build rapport with the seller -Verify information gathered about subject property from other sources -Take preliminary photos -Determine what needs to be done to get the property ready for the market -Gather data for the MLS listing

What type of information will you gather when you're touring the Marcus home? All but one applies here.

-Curb appeal and what needs to be done to enhance it -Whether what you see matches tax records and other data you've found -What updates or changes you'll recommend to get the house market ready -Where the property boundaries, water shut off, and electrical panel are -The reason the Marcus family is selling -Great info gathering! These are all good items to uncover during the property tour. You can also ask about permits, recent appraisals, the neighborhood, recent repairs and upgrades, and age of appliances and roof.

Do you understand "days on market"? Select the three true statements about this important market indicator.

-Days on market means how long it takes a property to go under contract. -A greater number of days on market means it's a buyer's market. -A lower number of days on market for a given neighborhood, compared to the surrounding area, means the market is popular with buyers.

Keira suggested a list price of between $339,000 and $345,000 for the Richardsons. They were initially surprised, given that the competition was currently listed at $350,000 on average, but they understood her reasoning, and they definitely wanted to sell. Also, just because the competition was asking that price didn't mean they'd get it. But what if they didn't get their price? Homes in Winsome Villas were selling, on average, at 98% of the list price. Would a listing price of $339,000 or $345,000 be enough? They asked Keira what they could expect to net. So Keira prepared a seller's net sheet for both prices for them, based on her commission of 6% and an outstanding loan balance of $100,000. Can you provide a seller's net sheet for the Richardsons? Which two are true of the Richardsons' net?

-If they listed for $339,000, but sold at 98% of the list price, their net, before closing costs, but including Keira's commission, would be $212,287. -If they listed for $345,000, but sold at 98% of the list price, their net, before closing costs, but including Keira's commission, would be $217,814.

Comparable's in Rooms and Lot size

-Rooms Number of bedrooms, bathrooms -Lot size: This is less important than house size, unless the buyer is looking for acreage. Same bracketed lot size (e.g., if the MLS brackets lot sizes of 0 to 2,999, then 3,000 to 4,999, then 5,000 to 7,499, selecting one within the same bracket as the subject property) Adjacent size brackets (e.g., if the subject property is in the second bracket—3,000 to 4,999—selecting comparables from 0 to 2,999 and 5,000 to 7,499 would be a mistake

Comparable's in size

-Square footage (total and above ground) -Square footage (total)

Let's put you in the driver's seat now. Having seen Keira's market analysis and the data points she's gathered, how would your recommendations be influenced by the Richardsons' situation? Select the three that apply.

-Suggest a lower range, because the Richardsons want to move quickly. -Suggest a lower range than competing properties. -Stay away from the $360,000 price range, due to recent expired listings.

What the Rule of Three says about comparable properties?

-Three comparables (up to six) -Sold within the last three months (up to six)

This is more of a "thinking cap" question. What are three reasons Keira might ask whether the owners have recently refinanced?

-To determine the seller's total loan balance -To find out what the appraised value was -To see if funds were used for property improvements

What four factors must be considered before determining an appropriate list price range?

-Whether it's a buyer's or seller's market -Amount of competition -Seller's timing needs -Seller's reason for selling Whether the seller will make the home market-ready is also important

Comparables in Age

-Within one to two years if the subject property is new construction -Within five years if the subject property is less than 10 years old -Within 10 years if the subject property is more than 10 years old -For historic properties, within the same historic period (e.g., 1910s to 1920s, 1930s to 1940s, 1950s to 1960s, 1970s to 1980s)

Match the appropriate activity to Analyze the Property, Analyze the Market, or Number Crunching. Is it a buyer's market or seller's market?

Analyze the Market.

What are the three things CMA does for you and your seller?

1. It gives you an understanding of the current market. If the suggested list price range doesn't seem right to your client, you've got concrete data on hand to explain why it's appropriate. This insight also helps you respond appropriately to offers. 2.It allows you to set a price that's based on the market, the property, and comparable sales. It prevents you from suggesting a price that's so high the listing will expire before it sells, making it that much harder to move, or a price so low that your seller loses money by accepting an offer at list price. 3.It allows you to set a price that is more likely to be acceptable to the buyer's lender, because it has a better chance of appraising. Lenders won't agree to a loan where the security for the loan (the property) doesn't meet their loan-to-value ratio (LTVR) requirements.

Priority of Comparable Factors Ranked in order of priority

1. Location 2. Sales Date 3. Size 4. Number of bedrooms, baths

What's a Comparable Property?

A comparable property is one similar in size, condition, and location to the subject property. For the purposes of performing a market analysis, however, you'll need to look at comparable sales. Why? Because the theory is that a property is worth whatever others will be willing to pay for it. The best way to determine that is to see what they've already paid for similar homes.

Other Considerations in Determining an Appropriate List Price Range

A suggested list price range depends on several factors: -Market value: As uncovered in the comparable number crunching. Market conditions: Is it a buyer's market, a seller's market, or somewhere in between? How much competition is out there, and how is it priced? -Expired Listings: Are all available comparable properties expired listings? If so this could be an indication of an issue with the market. -Seller needs, desires, and motivation: Do they need top dollar or a quick sale? What's their loan balance? How much do they need to net? -Property condition: How much work is the seller willing to do to make the property market ready? -Short sale: Will the proceeds be sufficient to pay off the outstanding mortgage debt, closing cots, brokerage fees, etc. so the seller can convey a fee simple marketable title? -Foreclosure: If a foreclosure action is a possibility, the listing agent must have an open and honest discussion about all options with the seller before signing a listing contract.

Match the appropriate activity to Analyze the Property, Analyze the Market, or Number Crunching. What are the inventory levels like?

Analyze the Market.

Would the feature description prompt a deduction to the comparable property's sales price, an addition, or neither? Subject property has a three-car garage. Comparable property has a two-car garage.

Addition

Would the feature description prompt a deduction to the comparable property's sales price, an addition, or neither? Subject property has excellent curb appeal. Comparable property does not.

Addition

Gather Data on the Subject Property Data Gathering During Property Tour

Age of appliances, furnace Recent updates, permits Owner's motivation to sell Repair, cosmetic, curb appeal issues Neighborhood, local amenities

Licensees should research a subject property before performing a

market analysis.

CMA

Comparative Market Analysis

Would the feature description prompt a deduction to the comparable property's sales price, an addition, or neither? Subject property is on a busy street. Comparable property is not.

Deduction

Would the feature description prompt a deduction to the comparable property's sales price, an addition, or neither? Subject property's kitchen hasn't been updated in 20 years. Comparable property has a recent update.

Deduction

Market indicators aren't really of any use to you if you don't know how to interpret them, so let's do a quick review of supply and demand in the marketplace. In the real estate market, when available housing drops to historic lows, what does it mean?

Demand exceeds supply (seller's market)

Darrell lives in a very rural area where price levels have remained low for several years. What does this indicate about demand for housing in the area?

Demand is low.

When you provide a well-researched comparative market analysis to your seller client, it benefits your client by ______.

Determining an appropriate list price according to market and property condition

Price usually moves with supply and opposite of demand. T/F

False

Gather Data on the Market What Type of Market?

Hot—seller's market Cold—buyer's market Neutral market Sources for Market Data MLS Title companies Tax records

A multiple listing service is a good source for data when researching a subject property. What information will you find there?

How long it took to sell last time

How Similar Must Comparables Be?

If you're lucky, you'll be able to locate comparable property sales in the same neighborhood or subdivision that have occurred in the last three months, that are the same size, age, style, that have the same number of bedrooms, bathrooms, and that are similarly appointed. Chances are, you won't be that lucky. So, how do you expand your search? You'll first need to determine what's most important to a buyer (location), only include recent sales, then look at size, number of bedrooms, number of bathrooms, and age. Condition is important, too, but we're going to assume you wouldn't dream of comparing a fixer to a dialed-in property, right? Right!

Sales price of comparable ± Adjustments =

Indicated value of the subject property.

Which of the following is a benefit to the real estate licensee of preparing a CMA for a listing presentation?

It helps the licensee research and understand the local market.

Comparable's in Location

Location: The closer to the subject property, the better. By ranking, the most important considerations for finding similar comparables by location are: -Same neighborhood -Adjacent neighborhood -Same school district -Same zip code -Same town (at this point, you've lost a lot of comparability) -Property type: A condo buyer likely won't want a single-family home, and vice versa.

When days on market (time it takes to have an accepted offer) are _______ pricing can be higher. When days on market are _____, pricing may need to be lower

Low........High

Jack keeps current buyer tastes in mind when touring a home during a pre-listing appointment. This helps him to ______.

Make a note of any recommended updates to discuss with the sellers

Computer-generated CMAs

Many multiple listing services (MLSs) and other software packages offer programs that help you organize CMA data into professional presentations, with photos, maps, data, and your contact information. Just remember to use these as a tool only, not as a substitute for doing your CMA homework. Whenever possible, you should visit any comparables you use, check sales history, and ensure that you've selected up-to-date similar properties and are appropriately adjusting for the differences between them and your subject property before suggesting a list price. After you've done all that, you're ready to make your presentation.

Determine List Price Range

Market value Market conditions Seller motivation (Do they need top dollar or a quick sale? What's their loan balance? How much do they need to net?) Market readiness

What's Market Value?

Market value is often confused with cost, list price, or sales price. While market value may sometimes coincide with one of these amounts, market value is actually none of these. Market value is generally defined as the probable price at which a willing seller and a willing buyer, neither of whom are under undue pressure, would transact a sale in a competitive and open market. So you can see that market value is neither list price nor sales price, necessarily. Market value = Reasonable price List price = Seller's asking price Sales price = What the buyer and seller agree to

Would the feature description prompt a deduction to the comparable property's sales price, an addition, or neither? Subject property has a gas fireplace. Comparable property has a wood fireplace.

Neither

Would the feature description prompt a deduction to the comparable property's sales price, an addition, or neither? Subject property is painted blue. Comparable property is painted yellow.

Neither

One market indicator is a change in sales volume. Select the answer that best defines sales volume.

Number of homes sold

Gather Data on the Subject Property Property Type

Owner-occupied or investment Distressed (foreclosure or short sale) Single family, condo, cooperative Manufactured or modularStarterNew constructionVacant or unimproved land

Here's how your notes might look from a property tour:

Positives: Brick, two-story traditional, three bedrooms, two baths, overall good condition, decent curb appeal, updated kitchen, ample deck, two-car garage, finished basement, and a fireplace in the great room (wood burning) Negatives: Small lot for the neighborhood, minimal landscaping (and azaleas are overgrown), steeply sloped wooded backyard; sunroom unpermitted (previous owners) Misc: Gas water heater (eight years old), main panel in basement, carpeting in all bedrooms, hardwoods in living room, dining room, and family room. Kitchen is tile floor, granite counters, stainless steel appliances, wood windows (double pane, three years old), 90% efficiency forced air gas furnace (five years old), water shutoff in east corner of front yard, boundary stakes at four corners.

Real Estate Market Indicators—How Do These Compare with Market Averages?

Price levels Inventory levels Vacancy rates Sales volume New building permits Days on market Other Market Indicators Employment levels Retail sales Manufacturing production and inventory New business start-ups Stock market

What Is the Market Value?

Probable sales price Willing seller, willing buyer No undue pressure Competitive, open market List price, cost, sales price, appraised value

Gather Data on the Subject Property Property History

Recent appraisalListing historyRecent updates, permitsAmount the current owners paid and when Balance owed Additional liens Tax-assessed value Lot size, easements

Comparable's in Recent sale

Recent sale: -Within the last month -Within the last three months -Within the last six months -Within the last year After this point, the sales are no longer comparable

Number Crunching Comparables

Select three to six comparables Make adjustments to comparable, not subject property Calculate adjusted sales price Weigh comparables (fewer adjustments = more similar to subject property) Determine market value range

__________ & ___________ are_ two key factors in determining an appropriate list price.

Seller motivation and market dynamics

What's the end result when you finish making adjustments?

The comparables' sales values now show what they would have sold for had they been more similar to the subject property.

Which of these is the correct definition for market value?

The probable price at which a willing seller and a willing buyer, neither of whom are under undue pressure, would transact a sale in a competitive and open market

The best way to start comparative market analysis data collection is to use properties that sold in the last ______.

Three to six months

Recent sales of high-value properties can skew price range averages. T/F

True

When studying price levels, it's important to look at how price levels rise or fall within a given price range, and not merely average sales price. T/F

True

How adjustments are made to comparables

When making adjustments to account for differences between a subject property and the comparable property, make the adjustments to the comparable property's sales price.

Rule of Three (Comparable Properties)

When researching comparables, think in threes. Three comparable properties is a good number, provided they're as similar to the subject property as possible. And sales that occurred in the last three months are best, but up to six months is probably fine. Market cycles can change dramatically from one year to the next, so recent sales are more indicative of pricing than sales that occurred several months ago. If you absolutely can't locate at least three comparables, it's possible to use two, but unless they're very similar to your subject property, two may not provide enough data.

Where are Comparable Sales Found?

Your number one source for comparable sales information is your local multiple listing service (MLS). Start your search broadly, searching for sales in the last year that match your subject property's location, size, and age. Then, begin to narrow your search further until you have just a handful (no more than 10) properties to select from.

The three phases of market analysis are:

analysis of the property, analysis of the market, and number crunching.

Recent expired listings tell you

at what price a similar property won't likely sell.

Which of the following best describes what you're attempting to accomplish by making adjustments? a. Maximize the sales price of the subject property. b. Differentiate between the subject property and comparable properties. c. Make the subject property more similar to the comparable properties. d. Make the comparable properties more similar to the subject property.

d. Make the comparable properties more similar to the subject property.