MARKET ANALYSIS

Comparative Market Analysis

A Comparative Market Analysis (CMA) is a practice used by real estate agents to value a home, often for a prospective seller to determine an appropriate list price or for a prospective buyer to determine an appropriate offer price. Agents evaluate recent sales in the same area and use them to conduct a sales comparison. In most cases, an agent will find at least five homes that have recently sold and are as similar to and located as close to the home being valued as possible. Each is then analyzed to pinpoint differences between that and the home being valued. Once these differences are priced out, the price of each “comp” is adjusted to reflect the cost of differences as though it were identical to the home being valued and being sold in the current market.

APPRAISALS

Based on a Professional’s Opinion

An appraisal is an unbiased valuation of a home based on a specialist's opinion. Mortgage companies typically consult professional appraisers for lending on home purchases and refinances. Before approving a new home loan, a lender typically orders an appraisal, the cost of which, around $500, is paid by the homeowner. An appraiser conducts a complete visual inspection of the interior and exterior of the home as well as taking into consideration recent sales of similar properties and market trends. The appraiser then compiles a detailed report on the home, including an exterior building sketch, a street map showing the home and any comparable sales, photos of the home and street, an explanation of how the square footage was calculated, and any other relevant information.

REFINANCING

Lenders base the amount of their loans on the value of your property and usually allow you to borrow a maximum of 75% to 96.5% against your property. Knowing what your home is worth allows lenders to calculate your equity in the home. The more equity you have, the better terms you will receive on your refinance.

HOME IMPROVEMENTS

If you’re doing home improvement projects to increase the resale value, you want to make sure you’re not pricing it out of the market. If your home is already priced on the high-end for your neighborhood, making too many improvements could make it more difficult to sell. When you get a valuation, you can see how your home compares with others in the neighborhood and let this guide your home improvement decisions.

QUALIFYING FOR CREDIT

If you want to borrow cash against your home, getting a Home Equity Line of Credit (HELOC) could be a good option. To qualify, you must have a certain level of equity in your home. Most lenders require at least 20%. Getting a home valuation will help you determine if you qualify and will be used by the lender to make a decision on your loan.

PLANNING

Though it’s not a necessity, simply knowing the value of your home is good information to have. It will help you plan for the future and deal with unforeseen circumstances when you might be in a position that requires extra money or a quick relocation. Knowing how much equity you have in your home and how much you may be able to borrow against it or sell it for will help you respond to any financial curveballs that life throws at you.