How to Do a Comparative Market Analysis
One of the services I provide to my sellers is a Comparative Market Analysis, or “CMA” – free of charge, of course. This is a giant step beyond just looking at comparable properties (comps) that sold in the last year. Comps are necessary to be sure, however they do not tell the whole story or prepare sellers for what they should expect in the selling process.
I want my clients to have a realistic expectation of how many days they might likely be on the market, and how the existing inventory of similar homes will affect their pricing strategy. Many sellers want to start with a higher price and see if they can get any takers. I believe it is smarter to see what the market is “telling us” about the average, percentage of asking price sellers typically receive, and then price wisely from the start to avoid becoming stale or missing actual buyers at the right price. Price per square foot can be a useful tool, but only if the data is informed about condition – it’s another way to “listen” to what the market is saying. Depending upon how many comps are used, one outlier can distort the square foot price significantly. It’s also important to think about how many showings sellers might anticipate before receiving an offer.
Friends are always asking me “how’s the market?” as if Mt. Pleasant, Seabrook, Wagener Terrace, and Hollywood are all alike. It’s important to stay up to date on local news and understand what factors, besides a new roof or remodeled kitchen, might be affecting pricing and sales. I like to start with a big picture explanation of housing in the region, and then focus on a more granular analysis to make sure my clients have the whole picture.
In preparing a CMA, I start by determining their particular market. As I noted, the Charleston market is large and widely varied. It’s important to understand the idiosyncrasies of particular neighborhoods and when and where mere proximity does and doesn’t work. If I compare homes in Carolina Bay or another more homogeneous, larger subdivision, I can use just that neighborhood to determine pricing. Sometimes it makes sense to set a physical radius from a major employer or school and use that to determine their specific market. In other more rural areas, using a 10 – mile radius might capture a horse farm, house on the water with a dock, and older ranch homes from the ‘60s and ‘70’s. This is not a true “market” for my seller’s 6 – year-old home on a .25acre lot.
Finally, there are uncontrollable factors that affect pricing. Brand new construction with gleaming features throughout can be adversely affected by the next door neighbor’s hot mess in the back yard. If your Hampton Park home faces the park, real value can also be added that cannot be easily quantified. Establishing the market is certainly not an exact science, it requires experience, and it requires discernment.