What is a Comparative Market Analysis?

When you decide to sell your house the first thing you do is try to come up with a selling price. You do this with a market analysis.

The Principle of Substitution and the CMA

The value of anything is determined by getting the most features for the least amount of money.

For example, you are looking at two identical automobiles, one of which you wish to buy and one is priced $100 higher than the other identical car. Which would you buy?

Another example in home buying: you are deciding between two identical homes in a tract development – one is located by the tract entrance by the highway, the other is up the hill away from the road with a view. The one by the road is priced $20,000 less. Why? - because the developer knows that buyers will always substitute the better location if the price is the same.

How does the Principal of Substitution affect your home sale?

Consider these trade offs given that everything else with two homes is the same:

View – no view

Busy street – quiet street

Just painted – needs paint

Groomed yard – overgrown yard

New systems – old systems

Hardwood floors – pink wall to wall carpeting

New roof – moss on roof

Cul-de-sac – next door to Costco

The list goes on and on. The point is, people ALWAYS substitute for the better, even if it comes down to one small thing such as a better washing machine in one home over another.

Every single positive raises price, every negative lowers price. In the end, your home is priced by the buyer based on the Principle of Substitution. What can the buyer get for his money?

A good CMA factors in as many variables as possible. Here are the main ones:

LOCATION – location is the single most important factor in valuation. In Seattle $250,000 gets you a smaller house in a less desirable area. In Centralia it gets you a brand new 4 bedroom home.

Other important factors:

Size

Lot size

# of bedrooms

# of bathrooms

Parking type

Style of home

Age of home

Condition of home

Type of energy sources

Type of plumbing and sewer

Quality of construction and materials

Included items such as appliances

Designer elements

View

These elements are then compared to other homes currently for sale, and to homes which have recently sold in the same area. Location plays a key factor even in a matter of a few blocks of distance. Seattle real estate inflation is high, so prices must be adjusted for each month of time that has passed since the sale of a comparable house.

Based on this research, a list of “comps” (comparable homes) is compiled and charted. In housing there is rarely a perfect comp, so a range is presented, and value is determined by the principle of substitution.

If you are interested in listing your home Click here for a free CMA

If you are a FSBO (For Sale By Owner) and want to order a comprehensive price study, demographic report, and extensive information on the current market click here to learn more.



Jim Hunt - Realtor^®
ABR^® -Accredited Buyer Representative