When your agent does a market analysis or a certified appraiser provides an appraisal for your home, the most important indicator of the local market and the market value of your home, comes from what other similar and comparable homes in the market have previously fetched on the market.
Comparable Sales Roles In Appraisal
Looking at the real estate listings for a neighborhood can be deceptive because the asking price is not the same as the sale price. Usually there is some negotiation that goes on to set the actual sales price. You need to have some more information. There are important factors in correctly pricing real estate. Prices change with time and they can vary significantly by location. They are also determined by the size and other characteristics of the property.
The pricing mechanism of residential real estate in most regions of the United States is simply an open market value that is determined by supply and demand in the marketplace. There are limits because real estate has some restricting factors.
First it is not very liquid; a perfect free market has no delays or resistance in the exchange process. The items for sale should be commoditized or all uniform. Also in a perfect market the cost of sales and exchange should not be prohibitively high.
As anyone who has had anything to do with buying a home knows, this is definitely not the case with real estate sales. There are delays and obstacles in the process that make it expensive and slow. No two buildings or locations are exactly alike. Finance fees, broker fees, stamp duties and state sales taxes can add much expense.
Putting The Open In Open Market
In spite of all of this the real estate market has some things going for it. The most important is freedom of information; because real estate transactions are a matter of public record information is widely available about sales.
The number of sales in a region helps to provide comparable sales figures. This is augmented by the use by agents of multiple listing services to share information that would otherwise be hard to find. Information is an important equalizer in the open market.
The only appraisal you get is from a certified appraiser, when your realtor calculates a price it is termed a market analysis. Only the appraisal will be allowed as the formal valuation when you are applying for a home loan as a buyer. In either case the value of the property is calculated by a careful comparison with similar properties by size and location.
The appraiser or realtor will take into other factors such as how rapidly market values are changing but it all comes down to having information about similar homes in similar areas, those prices at which those similar properties sold is what is meant by comparable.