How do I determine the right price for my house in Houston? If you find yourself asking this question, you have come to the right place! To do this correctly, we will give you the steps we follow when we build out our CMAs. What is a Comparative Market Analysis (CMA)? A CMA is an estimate of what the market may be willing to pay to purchase a specific property. How do you create a comparable market analysis? Well, unfortunately, it’s not an easy task in Texas because property sales are not publicly reported. Without this data being public, it makes the property value on Zillow and Redfin less accurate. A lot more goes into deciding the price besides looking at what is on the market currently. Licensed Realtors have software that helps them run comps on similar properties in just a few minutes. We run comparables for free, so if you want a no-obligation CMA, just fill out the form.
If you miss-price your house, you risk leaving money on the table or having the house sit on the market for months, and everyone just assumes that your house must have a major problem. This leads to a bunch of low ball offers and waisted advertising dollars.
- CMA can only be done by a realtor in Texas
- A CMA is different than the appraisal because of the intent behind the report. CMA is used to price a listing at top dollar where as appraisal is used to protect lenders or buyers.
- A CMA is composed of many factors such as age, size, condition, neighborhood and what the competition is currently doing in your market.
The Formula for a Comparative Market Analysis
House prices in Houston range from under $100k to tens of millions of dollars. So what makes a buyer willing to pay a specific amount for your property? Here are the steps we follow when looking at comparables. Let’s start from a wider point of view and work our way down to the house.
- Analyze the neighborhood : What school is your house zoned for? How close is it to parks, shopping, groceries, entertainment, etc.? Is your house near something like a noisy train, busy street, fire station, or a factory? We will filter houses by schools and look at your surrounding neighborhood.
- Evaluate the property : Now we need to take note of several factors specific to your house to set filters on. When was it built? How many square feet does the house and the lot have? How many bedrooms and bathrooms? Were there any upgrades like a new roof or a new master bath? What is the style and layout? For example, if your house has vaulted ceilings and an open concept from the kitchen to the living room, it is worth more than a house with 8-foot ceilings and closed-off spaces.
- Similar Sold Comps : Select similar properties that were sold in the last 6 months and no more than 1 mile away. In an ideal world, we will find a house that is almost identical to your house. In some markets, you may find that the number of transactions in the last 6 months is low in your neighborhood, so we may need to remove some filters and make some cost estimates based on homes that are not a 100% match. This will take a bit of back and forth work to target your right price.
- Active Listings : Look at currently listed properties that are similar and the number of days on the market. If you have a house that is similar to yours and has been listed for a long time, then it could be a sign that the market is cooling in your area, and you may need to price more aggressively than your competition.
- Adjust for differences : Now we take a holistic look at the contributing factors to your pricing. Is the number of bedrooms a driver? Is the number of stories a driver? Is the primary bedroom upstairs or downstairs?
- Evaluate the time of year : Houses will range a lot in price based on the time of the year. In Houston, Texas, we typically see the real estate market start heating up in late February and then it peaks near May or June. Many people will try to buy a house and make the move while their kids are out for school. If you are selling during a different time of year, you will need to account for this in your pricing. You can track seasonal price changes on websites like Redfin.
- Calculate sold price per square foot : Once we determine the drivers to price, we look at your competition; we will then find a price per square foot that we can use to apply to your home. We take that and multiply it by your square feet to find a suggested list price.
- Determine the List Price : We already have a price from calculating by square foot price; however, we will take into account your target date you wish to sell and look at the number of days on the market to build a pricing strategy that fits your ultimate goal.
CMA vs Appraisal: What Are The Differences?
A CMA is performed by a licensed real estate agent, whereas an Appraisal is performed by a licensed Appraiser. They both look at a lot of the same data when building their report, but the way they build their report is slightly different, and the purpose of their report is also quite different. A listing Real Estate Agent’s job is to get their client top dollar when selling their home. An appraiser’s job is to make sure they accurately pin the value of the property down so that either the buyer or the bank lending on the property do not make an ill-informed investment. An appraiser can only use data of similar types of properties that have sold around it, and they can make some adjustments based on the cost to build things to determine a house’s worth. A real estate agent, on the other hand, may have knowledge about the area that leads them to believe that buyers will pay over the appraisal value in cash due to demand in the area. For example, if a brand new factory is built nearby and they are hiring 5,000 employees, this can cause a spike in demand in the area that may cause people to pay more for the convenience of not having a long commute. An appraiser is much more scientific in how they arrive at the value of their property, but they cannot speculate on price; they have to use the data that is proven to be reliable. A real estate agent can use their CMA to show you that even if similar houses in your area are overpriced, they are only sitting on the market for 5 days; therefore, they can suggest a higher price based on demand.
Example Of A CMA
We are going to look at a house in Houston, Texas, and walk you through an example of a CMA we are going to perform.
- Analyze the neighborhood :First, we look at the neighborhood. We notice that it is conveniently close to HWY 290 yet not too close to be noisy. This is good because it offers quick access to roads to commute. I also notice that my subject property is pretty close to a community that has lakes. I want to take a mental note not to use any properties that are similar in the lake community because I have been in that community and I know they will sell higher than my subject property. The house is also directly in front of a school, so some people may not like the traffic from the school.
- Evaluate the property :Now we evaluate the property. We see it has 2,592 square feet, 4 bedrooms, 2.5 bathrooms. It had the bathroom renovated somewhat recently, and it seems to have nicer cabinets than some of the properties nearby. The roof and siding have been replaced in the last 10 years, and it has two AC units that are less than 3 years old. There are no issues with the condition of the property.
- Similar Sold Comps : Now we need to select similar sold Comps to see what the ranges are in our neighborhood. I set a few filters within a half mile from the property. I have all pending, active, and sold properties in the last 180 days. I also set a filter that is 10%+ and 10%- from my property’s square foot count with 4 bedrooms, 2.5 bathrooms, and has two stories with no pool. The MLS showed me 6 listings that fit that criteria. I then looked at pictures of the properties to make sure they had a similar layout, finishes, ceiling heights, etc. One of the properties had no pictures, and it said investors only, needs lots of work. This house also sold for $100k under the others, so I am going to remove that from my list. There is also one house that is pending, but it has vaulted ceilings in the entryway and does not have the same layout, so I will remove this one as it will sell higher. I end up with 4 properties that are similar, one is active, and three are sold.
- Active Listings :The only active listing that is similar in criteria has been listed for 46 days. This is the longest days on market for all of the comparables, so maybe that house is listed too high. It looks nice, but our current market has more active listings coming than houses sold, which means it’s more of a buyer’s market than a seller’s market.
- Adjust for differences :We are lucky on this one, as there is enough data in the neighborhood to not require adjustments. We already took out a few properties in step three that didn’t fit as comps.
- Evaluate the time of year : It is currently December, and this listing will go live the first week of January. In Houston, the market usually bottoms in January and tops in May. My Comparable Properties were sold in July and October, which are traditionally higher than January. When we look at the CMA, the three houses that sold are at $134.98 to $135.46. They also sold very close to the list price per square foot. The properties that sold in July were on the market for 7 days, whereas the property in October was on the market for 34 days.
- Calculate sold price per square foot : Since prices are still trending upwards on a year-over-year basis, and there is no urgency to sell fast, we are going to use $135/sqft, which means a list price of $349,920. This amount is just under the price per square foot that sold in October.
- Determine the List Price : In this case, there is no urgency to sell, so the seller doesn’t want to drop prices below the suggested price per square foot. They are ok waiting until the end of March before they make changes. You could consider increasing the price by $3k-$4k, but that would put the price over $350k, so if anyone has a search with a limit of $350k, that property won’t appear in their search. As such, the price we are going to list this house at is $349,920. It may sell a bit below this price as it is directly across from the school; however, we will start with what the data shows us today.
As you can see, there is quite a bit that goes into pricing a house. At the end of the day, the number of buyers looking for a house in your neighborhood and the amount of inventory for sale that meets that criteria are what determine whether a sale will go through or not. A CMA is a tool that can be used to give you a starting point based on data.
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We are cash house buyers in Katy, TX, and we buy houses all around the greater Houston area. We also have several licensed realtors on our team, so if you would like a no-obligation CMA, be sure to fill out the form on this page to get in touch with one of our realtors.