What is this “Comprehensive Market Analysis” thing?

Rona, does the recent level of appreciation/depreciation get factored in as well? For instance, if prices in general had fallen 5% it the past year, would the CMA factor in the depreciation which would be likely to occur between the sale of the recent comps and the sale of the property being analyzed?

Rona, what seems to trouble me is not that we need a "value" in mind, but the algorithm of CMA to come up with that value. Realtors accuse online-evaluation to be inaccurate because of the reliablity of data. It is ture. But how do realtors make sure that they have much more accurate data? And what about sample size and unbiased selection? How many comparatives do you pick? When you lack comparatives, do you set larger area and longer time period? and how do you adjust for that?

A more detailed description will be educational for unexperienced agents, and customers who don't know their agents performance, don't you think? They all say they are 100% working for the buyers, they all say they will do very thorough CMA and they do, but how do buyers tell whether it is good CMA or bad CMA?

Dear Tim,

Good question! Market factors do come into play.

When the market is dynamic, I only use very recent sales, and I date them from the time they the deal is made ("gone under agreement") instead of the closing date. When I cannot find good matches in a short time frame, I will use appreciation and depreciation factoring.

Since real estate is very local, the owner of my company does a trend study quarterly and can refine it to a town and size/type range when I need him to.

Rona,

Just curious...

Where do you feel the market is headed?

K-VASS

I get asked this all the time. I am a broker, not an economist. Truth be told, I don’t know how and when this market will turn. I read the economic reports and they contradict one another. Back in July, I wrote this.

People who make predictions in writing get to be wrong in writing. So, I am not going there!

Real estate is the investment that people get to live in while it depreciates (and appreciates.) This makes it unique. I pay attention to the property in question and my client more than the national or state trends. That’s the whole point of the CMA; to prepare my client to negotiate by giving them information on what is a good deal at this moment, in this town, for this house. The better the deal going into the market, the better they will fare in the long run.

Although I don’t predict, I watch. I’m having a great fall. I have active, interesting buyers who are buying. I am seeing sellers who must sell and therefore are flexible with their pricing. But I am also seeing some homes in high demand where sellers are taking their pick of buyers. It’s a mixed bag.

I think Rona's point on difference between Asking & Sale prices is right on. I've been tracking homes for almost a year. I tracked about 120 homes that I considered "nice enough to buy" in the Dedham / West Roxbury / Norwood area.

The difference between Original Asking (the price the owner first put it on the market for, before any reductions) and Actual Sale is 6.75%

The average Original Asking for the houses I tracked was $436k. The average Final Asking was $422k. The average Sale Price was $399k.

This is, admittedly, a very small sample. But I found it eye opening.

Dear Le,
Realtors do not say on-line systems are inaccurate, US News and World Reports, does.
As for the accuracy of an agent’s CMA, the CMA is as good the agent. A responsible agent starts in the smallest possible time frame and closest geography and moves out in time and distance until a pattern emerges. In this blog entry, I explained what I do. It is not my job to train my competition.
As for your comment that “They all say they are 100% working for the buyers, they all say they will do very thorough CMA and they do, but how do buyers tell whether it is good CMA or bad CMA?”
I hear your distrust. I wonder where you found your “buyer’s agent?” At an open house, where he/she was selling something? In a company where their listings are all over the windows? Did you get references on your agent? Do you know how often he/she works with buyers instead of sellers? Is your buyer’s agent a member of MABA, who makes this promise?,
There are bad agents out there and there are good ones. Choose carefully.

Hi Rona,

Thanks for the information you've been posting. As a current homeowner, should we consider putting our home on the market now, if we've found a new home that we like? With the latest Sept report on home sales, I'm wondering if it is a bit late to put anything on the market and if we should wait till Spring. Also, is it worth investing in your home prior to selling and if so how much should you invest - we are considering updating our bathrooms?

Also, do you have any insight into the Charlestown Market? Do you think that the neighborhoods between Bunker Hill Street and Medford Street are a good place to buy (ie. value, up and coming neighborhood)?

Thanks so much. With the way things are right now, it is tough to decide to move - our timeline is we would move in the next 2 years regardless...just should we wait or move now if we've found something?

Dear Becky,
I will post a blog entry on your question of trading up. It is a great topic. So keep reading!

Here’s a short answer for now:
Get a realistic picture of what you will get for your house, less fees and commissions. Also make an estimate of what you will spend on your new place, plus fees. Then do the math. In most cases, if your current home is going down (or up), so is the place you want to buy.

Start both house-hunting and marketing your house in a way that gives you the most flexibility on the harder part of the process. So in this market, sell first.

I don’t work in Charlestown, but I could find an agent who does, if you want me to.

Dear Rona, I am still skeptical about the concept of dedicated buyer agent. Under current system, the conflict of interest is inevitable. Dual agency is not the key point at all. At the end of the day, agents' commission is still tied to sale and therefore, they naturally want the deal done. During negotiation, both seller and buyer has only one leverage, turning down the deal, and clearly, it conflicts with agents interest.

For this reason, I wouldn't rely on CMA given by any agent, no matter he/she is a MABA member, dedicated agent, or a dual agent. I always compare CMA to my own research based on public information, which has been quite amazing lately.

Rona,
Once we decided to put our house on the market, we interviewed four local real estate agents. Three out of the four agents quoted us market value estimates that were suspiciously high. Prior to reaching our final decision, the cover story of that Sunday’s Boston Globe’s Real Estate section was on the topic of how important pricing your home is in this soft market. We choose the agent who quoted the lowest market value estimate not based solely on this fact, but it was certainly obvious she wasn’t simply attempting to “buy our business”. Not surprisingly, none of the other three agents have been banging down our door with their clients who are clamoring for “a steal” based on their estimates.

A comment on both Le and Tom:

Le, you will always remain skeptical. For some reason, you think everyone lacks integrity. There are agents out there who will take the money and run, and there are those who do a good job. At the end of the day, those who do a good job stay in business and those who are fast and sloppy lose their following. Good ethics are good business.
If you can figure out what to pay by yourself, go for it.

Tom, I applaud your action as a good consumer. You chose the agent with integrity.

To all: which one of these people do you think will have a real estate transaction first? Which, do you think, will be happy at the end of the day?

Rona,
Thanks for the suggestions. We have a realator that we trust in Charlestown, but still unsure of how to proceed as to make a move or not. Looking forward to your insight on whether now is a good time to "trade up".

As for Tom and Le, well I see Le's pt on a buyers agent, however I would like someone to be there to play "hardball" for me and my interests - regardless commision is going to be paid - so might as well have someone looking out for me. As for Tom - good move - I agree - the right price makes the deal right now on a good place. Let us know how it goes and good luck!

Rona,
My major question was the algorithm of CMA: Sample size, adjustments, market dynamics, etc. Without these factors, a CMA is a blackbox. I trust that you may have a robust one and don't want to educate your competitors in the blog. But it also means that CMA could be a thing without standard.

I disagree with you on "integrity" being the answer, this was an unrelated issue in the first place. How does good ethics affect an algorithm? And no, I don't think every one lacks integrity. And since you broght it up, I don't think a MABA member or dedicated agent will automatically gain integrity either.

I believe I have answered this question already. There is no algorithm. You are right, there is no standard. The CMA is a matter of professional judgment and the result is as good as the person doing it. The sample size is small and local; this is the most relevant data. When the sale time is not short, I calculate for the market changes. The adjustments are based on knowledge of the market, which is why attempts to automate this process simply don’t work.
Let me give you an example: How much is a parking space worth?
Well, in Back Bay a parking space could cost $250,000. In Cambridge, maybe $25,000 or $30,000. A first parking space is essential in Brookline or Arlington, where there are street parking limitations, but what’s the second one worth? Depends on the availability of rental parking.
In towns where most houses have two-car garages, a one-car garage is a negative. But, a one-car garage is a plus in a town where garages are unusual. How much is a garage worth? Depends.
IMHO, to know what a property is worth, you need someone who knows the market, spends the time, and does a good job. Tom’s story about the agents who wanted to overprice his place just shows that the CMA is a matter of judgment - good or bad. You have two choices: find someone worthy of your trust or do it yourself.

Hi Rona,
In your last comment you wrote:
In towns where most houses have two-car garages, a one-car garage is a negative. But, a one-car garage is a plus in a town where garages are unusual. How much is a garage worth? Depends.

The way appraisers determine what a garage is worth is to find two comparable properties that are similar except for the garages and see what they sell for. The difference in sale price between the two houses is what the market valued the garage. The hard part is finding two similar properties with only one different feature.

Paul,
I look at the sold homes to figure out what garages and other features are worth, in a similar fashion. That's why a CMA can take a couple of hours; it isn't some simple algorithm.
You did a good job of explaining it. Thanks.