- Comparable Market Analysis takes into account comparable properties and sales
- It can help a prospective buyer ascertain the best offer to make on a property
- Various software programs and professionals can be used to assist
Navigating through a buyer’s journey from decision to negotiation involves obtaining reports on maintenance costs, building inspections, pest inspections and most importantly, a price check to ensure that the purchaser comes out on top of the negotiations.
Once a purchaser understands the current market value, previous & forecast growth, prospective redevelopment plans in the surrounding suburbs and also the facilities and amenities within a 1 km radius, they can start to predict its future growth and fortify the strength of the investment.
This is where a Comparable Market Analysis (CMA) can be vital.
Banks use a report of recent sales (6-12 months of similar properties), number of bed/bath, size of property, development potential and similar properties on the market with relatively similar market value.
There are multiple software and programs that help the purchaser generate these reports:
Researchers might also contact their local real estate professional who may be able to generate the above reports within minutes and in some instances represent the buyer in negotiations as a buyer’s agent.
The following are important points to consider in generating a market analysis:
- Year built
- Total square metres
- Number of bedrooms and bathrooms
- Recent renovations
- Interior finishes
- Any extra features (swimming pool, granny flat…)
A CMA in practice
Let’s say you are looking to purchase a property that’s on the market, which successfully sold 3 years ago for $475,000.
If the market has risen by about 4% since then, then we might think the property is worth around $494,000 ($475,000 x 1.04).
Next, find comparable properties in the neighbourhood that are similar as regards bedrooms and bathrooms, style and finish. The sales price for these homes might be around $500,000. Based on this, you estimate this makes your intended property’s value about $510,000. (Remember, the sales evidence refers to sales in the past, so the $500,000 price may already be out of date, especially in a rising market.)
Now, consider what’s currently on the market. This is the property’s competition.
Let’s say there are two homes in the 1km radius that have been for sale for 90 days and still don’t have any offers. They were built around the same time, and have similar features. Their list prices are $520,000 and $535,000. Given this information, a price of $515,000 might be the sweet spot.
Finally, consider a recent article that the neighbourhood school is just about to finish a major renovation, making it the best school in town. You estimate this could add another $5,000 to your asking price.
This gives you a predicted sales range of between $489,000 and $519,000. With all the evidence to hand, you might confidently present an offer combined with a strong finance position and decent terms and conditions allowing you to emerge victorious in your property purchasing journey.