One of the most nerve-wracking aspects of buying a home is preparing your first offer. While you don’t want to make an offer that is so low that it shuts down negotiations, you also don’t want it to be higher than the true value of the home. Coming up with the perfect offer isn’t just a guessing game as there are numerous factors that go into determining what a home is actually worth. One thing that can help you when preparing your offer: a Comparative Market Analysis (CMA).
Once you’ve found a home that you’re interested in and you’re ready to make an offer, the first thing you’ll want to do is obtain a CMA, which will detail the home’s essential characteristics and compare it with other homes in the area. The report will include the sales price of homes similar to the one you’re interested in, how long these homes were on the market before they sold and what the competition looks like.
Your real estate agent will conduct this analysis for you, providing a good foundation for making a proper offer. However, it’s not totally out of line to perform your own CMA to help decide if a home is within striking distance of an amount you’re willing to pay.
The outcome of a CMA should narrow the infinite world of potential prices to a fair range of prices, with clear upper and lower limits reflecting the realm of realistic prices an average buyer would pay for the home. The CMA will also include realistic appraisal values for the home.
Once you have the CMA, it might be a good idea to drive by each of the comparable properties that recently sold to get a good sense of the neighborhood and evaluate the home from the outside. A comparable property is one which lines up closely with the home you’re looking at in terms of square footage, upgrades, features, condition, school system and location. The sales price of a very similar property can be highly predictive of the market value of the home you’re interested in buying.
A good rule of thumb is to calculate a fair value range for your target home and multiply the average price-per-square-foot of the comparable homes by the square footage of your target home. This will provide a baseline for the market price.
Then, if the target home has characteristics that make it more or less desirable, adjust the value up or down to account for those.
Another thing to take into consideration is when a comparable home sold. For instance, if the comparables that sold for the highest price occurred during periods when there was little inventory, you may amend your offer considerably if the current market has a significantly higher inventory.
One strong piece of advice: Don’t always try to lowball an owner on a house you love, because you may find that it’s gone before you have a chance to negotiate.