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Before putting YOUR home on the market to sell, your agent will give you a comparative market analysis, also referred to in the industry as a CMA. It’s basically an estimated value of your home. A CMA is calculated by looking at recent comparable sales in your neighborhood within the last 3 months. Three months is used as a timeframe because the market prices change so fast, any homes sold before then would not be supportive of today’s prices.
Homes that have similar square feet and lot size are evaluated first. Differences such as number of bedrooms and bathrooms, remodeling, views, pools and spas, busy street are taken into consideration and adjustments are made. Sometimes pending sales can be used if the listing agent will reveal the price at which it will eventually sell. An active or pending listing cannot be used as a comparative sale if we don’t know the final sales price.
This is the real estate principle of substitution which states that a buyer will not pay more for a property than the cost of an equally desirable alternative property.
This method is the best estimate of value. Of course, in a rising market, that has little or no effect on the sales prices. The final sales price is whatever a buyer is willing to pay.