Reviewing Comparable Home Sales

A Comparative Market Analysis (CMA) is a method real estate agents use to estimate a home’s value by reviewing similar properties that have recently sold in the same area. Agents identify comparable sales and use them to complete a sales comparison. In most cases, an agent selects three recently sold homes that are as similar as possible to the property being valued and located nearby. Each comparable property is carefully reviewed to identify how it differs from the subject home. After assigning values to those differences, the price of each comparable property is adjusted to estimate what it might have sold for in the current market if it were identical to the home being valued.

An Assessment Based on Professional Opinion

An appraisal is an unbiased valuation of a home based on the opinion of a qualified professional. Mortgage companies commonly use appraisals for home purchases and refinancing. The lender usually orders the appraisal, while the homeowner is responsible for its cost, which can sometimes reach $500. An appraiser performs a complete visual inspection of the home’s interior and exterior and reviews recent sales of comparable properties and current market trends. The appraiser then prepares a detailed report that may include an exterior building sketch, a street map identifying the property and comparable sales, photographs of the home and surrounding street, an explanation of how the square footage was measured, and other relevant information.

Lenders determine loan amounts based on the value of your property and generally allow you to borrow between 75% and 96.5% of that value. Knowing your home’s current worth helps lenders calculate how much equity you have. The greater your equity, the more favorable the terms you may receive when refinancing.

If you are making improvements to increase your home’s resale value, it is important to avoid pricing the property beyond what the local market can support. If your home is already among the most expensive properties in the neighborhood, adding too many upgrades could make it more difficult to sell. A home valuation shows how your property compares with nearby homes and can help guide your improvement decisions.

If you want to borrow money against your property, a Home Equity Line of Credit (HELOC) may be a suitable option. To qualify, you must have a certain amount of equity in your home, with most lenders requiring at least 20%. A home valuation can help determine whether you meet this requirement and will also be used by the lender when evaluating your loan application.

Although it may not always be necessary, understanding your home’s value is useful information to have. It can help you prepare for the future and manage unexpected situations that may require additional funds or a quick relocation. Knowing how much equity you have, how much you may be able to borrow against your property, and how much you could potentially sell it for can help you respond to unexpected financial challenges.