What are “Comps”? And Why do They Matter when Listing?
Running comps, or a Comparative Market Analysis (CMA), is a crucial first step in selling a home. It’s the process of determining the fair market value of a property being sold by examining the prices of recently sold, similar listings the same area to get the most accurate estimate possible. This process ensures that your home is listed competitively in your market, to net you the maximum return on investment (ROI).
The CMA is generally divided into three categories—comparable homes currently for sale, comparable homes that sold recently (typically within 90 days in up to a 3 mile radius), and comparable homes that failed to sell. By looking at these three factors, we can make certain that we are not under or overpricing your home, we can get a clear picture of how the market has valued homes like yours, and we can avoid pricing at a level that would not attract buyers.
While you can find some of this information on popular home search websites (we won’t mention any names), these numbers are inaccurate more often than not and don’t tell the whole story. Our experts pull the most accurate data from Maris, Missouri’s MLS, that can only be accessed by real estate professionals.
Key Data Used for Comps (CMA)
How do we determine what comparable homes as listed above are used to develop a CMA? There is a variety of details we take into account when looking for comparable homes to yours including:
- Property Type
- Year Built
- Square footage
- Number of Floors
- # of Bedrooms
- # of Bathrooms
- Recent Upgrades
- Cost vs. Value Assessment
- General Condition
If we can see that the market has valued homes like yours at a certain price, we can be confident that our list price will make the most sense for your home selling goals. For example, let’s assume you have an updated and well maintained 3 bed, 2 bath ranch with an unfinished basement in a local subdivision. If one of your neighbors with a similar floor plan but outdated appearance just sold their home for $250k, and another neighbor with a modestly maintained 4 bed, 3 bath 1.5 story with a finished basement just sold for $320k, we can reasonably expect your most competitive list price to fall within that $250-320k range.
Are CMA’s always accurate?
As you can see in the example above, a well done CMA will provide more of a range of pricing versus a hard and fast number. Mistakes can of course be made if a seller is using an inexperienced or part-time agent, but experienced agents—like those at The Realty Shop—pride themselves on the accuracy of their CMAs and have a proven track record to support their value estimates.
There are a few factors that can cause a CMA to be inaccurate or misrepresentative of a home, including:
- Poorly selected comparable homes
- Homes that don’t show similar features or upgrades
- Lack of listing data
- Undisclosed undesirable features nearby
The points highlight the importance of having a Realtor on your side that is an expert in your local market. An inexperienced or unfamiliar agent may not take into account a noisy highway near a recently sold home that lowered its value. Or, your home may be one-of-a-kind in it’s area which could make it difficult to find similar homes to compare. Furthermore, you could be in a neighborhood with low turnover and no recently sold home within the past 90 days.
When you list with one of our agents, you can be sure that they are experts in every part of the markets they serve….and have more than likely already sold homes in your neighborhood.
Why is competitive pricing important?
As you start to move above fair market value you begin to attract a much smaller percentage of prospective buyers, greatly reducing your chances of a sale. Conversely, as you move below market value, you will likely attract a much larger percentage of potential buyers—or if priced too low you run the risk of off-putting potential buyers for fear of major issues with the home. That sweet spot right around fair market value will almost always bring you the best amount of qualified buyers to net you the best ROI.
We like to look at these three different pricing strategies: As-Is or Bidding War, Fair Market Value, and Unicorn.
- As-Is or Bidding War — we know that homes in the area are selling for a price range of X. Pricing just below that value encourages the excitement of a deal for buyers and a quick sale.
- Fair Market — we look at the comps and price trends and price the home right at Fair Market Value. These homes will typically sell fast in a sellers market, but likely without the frenzy.
- Unicorn — priced much higher than Fair Market Value. Homes listed at these prices will likely sit on market longer than average, unless a specific buyer shows up.
How does time on market affect your bottom line?
Days on market is an important factor in every selling strategy. When a home is not listed competitively, the time on market can drastically affect the market value of the home, potentially dropping up to 8.9% of the list price. This may mean that the home is too overpriced, but in some instances the home may just to be staged or marketed differently, especially if it has unique features for the area.
When you list with The Realty Shop, our agents will take all of these factors into account to provide you the most competitive list price tailored to your individual situation. Interested in receiving a CMA for your current home? Fill out our home valuation form to get started!