Help me understand CMA & comps

11 years ago

Hello, all, I am purchasing a house for investment property, with the plan to move into it in the not so distant future. I'm looking within one particular zip code, an older neighborhood which is very stable. The houses range from early 1940's (some '30's in there) to the early 1960's. This is in northern Louisiana, so property prices are much lower than many (or most) other places. One house I've become very interested in is in need of updating, cosmetically at the least - new paint, new flooring in kitchen, new lighting at the very least to make it attractive to renters. I already had an electrical inspection done, and it needs a couple of new circuits and new outlets throughout, with an outlet added in the bathroom. The HVAC is probably over 20 years old, as is the roof (the owner hasn't said, but I know she's been in the house for 20 years). It does have a garage and a very large backyard. The asking price is $124,500.

My agent gave me a CMA. Of the houses included in it, all sold for about $10 - $15,000 higher. All of them were much nicer. I do understand the process of making adjustments: $3,000 for garage, etc. But the price she ended up with is higher than the asking price on this property - Here's the conclusion of the CMA: Analysis of the selected comparable properties suggest similar properties are selling in the price range of: Recommended Purchase Price: $133,800; Suggested Offer$129,300 to $138,700.

I suspect what I'm looking at here is simply a computer program spitting out a conclusion, that the agent really wouldn't expect me to offer more than list price for a house that doesn't really compare? But if so, how is this process helpful to a buyer? And if the seller is looking at the same comps, how is that affecting her asking price?

Can y'all help with feedback, advice, etc? Thanks to a new poster here,

Rita

Comments (4)

brickeyee
11 years ago
No matter how you analyze the cops there is going to be variation.

If the comps are "All of them were much nicer" it cold eaily mean this house just is NOT going to sell for the higher price.

Make an offer that makes sense based on what you think it is worth.

No program or algorithm can tell you exactly what the place is worth to you.
ncrealestateguy
11 years ago
I have comped out my buyer's potential home and have had the asking price come out a bit less than the comped out price. All it means is that the seller has listed their home close to what it is worth. Even though the comps that your agent used were nicer homes, they also got adjusted down to come up with your price.
As far as the recommendation on what to offer; you are right. I leave this computer generated hogwash out of scene.
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invisible_hand
11 years ago
What your realtor is telling you is that the asking price for the house you are interested in is lower than the fair market value - a bargain. She has used a computer program to advise a "Recommended Purchase Price: $133,800" and presumably an offer price at or slightly below the asking price.

In reality, your realtor(and the computer program she uses) are likely wrong for the reason you suspect - the houses really aren't comparable and haven't been adjusted for the "niceness factor" or the work required to fix up the property.

Please keep in mind that it is in your realtor's best interest that you bid high as that makes for an easy sale so the tendency in my experience is to overstate the recommended offer price. (In this case, finding a way to "blame" it on a computer program is pretty slick!)

I'd suggest taking the agent's CMA and then deducting the cost of all repairs required to bring it up to the same level of niceness as the comps. ($133k - $5k for roof - $5k for HVAC -$10k for paint, flooring, lighting, circuits etc. = $113k). If this at or below of what the property is worth to you, this is likely a good starting place for an offer.
kats_meow
11 years ago
When we were looking at houses on the house we ultimately bought our agent thought it comped out slightly higher than the listing price. On paper that was true, but I felt it didn't account for some of the negatives of the house and, after all, the house had been listed for 6 months and hadn't sold so that implied it wasn't listed significantly below market value. We ended up paying about 95% of list price which seemed about where I assessed the value.