Imagine that you live next to a house that was recently renovated with granite counters, brand new flooring, and updated bathrooms. Even if your properties were similar before they updated, that home is now worth more than yours. If your neighbors listed their home, it wouldn’t be reasonable for you to think that your home would sell for the same price without you doing those same updates first.
A comparative market analysis—also called CMA—essentially means pulling comps. There are many ways that you can pull comps, such as Zillow or Trulia. The most important thing to keep in mind is using a reputable source to pull your information.
Before diving into real estate investing, make sure you understand how to compare markets and properties. Whether you’re trying to decide between investing in Boise or Sacramento—or you’re just comparing two similar homes—this guide will walk you through all the numbers you need to know. From calculating cash-on-cash return to running a comparative market analysis, the experts at BiggerPockets demonstrate the steps you need to follow and the statistics you must know.Read BiggerPockets’ Beginner’s Guide to Real Estate Market Analysis.
For example, if a home sold for $100,000 and was 1,000 square feet, that home’s price per square foot would be $100.
Price per square foot is very relative to the area in question—both by city and sometimes even by neighborhood. That is why we try to pull comps as close to the home in question as possible.
Now that we have some comparable sold home prices in price per square foot, we can figure out our home’s ARV. The equation is simple: Take the average price per square foot and multiply it by the square footage of your property.
Most of the value in your home is determined by the number of beds and baths, square footage, and lot size. But there are other things that go into a home’s value, too.
If your home has a garage and none of the comparable homes did, then you could bet that your home is going to be worth more in the same condition. Sheds, carports, tornado shelters (given location necessity), or other amenities can also add value to your home and should be considered when looking at comparative homes.
There are many, many more things that won’t have an affect on price but can affect how quickly you sell the home. You shouldn’t consider these when determining ARV.
For example, taking down a wall between two living spaces to create a more open concept will not add a whole lot of value to the house, but it will create a much more appealing home to the market and cause it to sell faster. And paint color can dramatically affect how desirable a home is to potential buyers, but it won’t make much of a difference to the price you can sell the home for.