Comparative Market Analysis (CMA) In Real Estate: A Guide

If you’ve sold a home before, you know how difficult it can be to settle on a fair asking price. On the other hand, it can be equally as challenging for buyers to decide how much to offer. There’s no perfect way to make this decision, but one way to help both buyers and sellers in this situation is to ask your real estate agent to conduct a comparative market analysis, also known as a CMA in real estate.

CMAs are an important part of the home buying and selling process so it’s essential to learn how they can help you as a buyer or seller.

What Is Comparative Market Analysis?

A CMA is a tool used to estimate a home’s value by comparing it to similar ones in the same area. Real estate professionals use CMAs to help clients selling their homes set an asking price or to help those interested in buying a home make competitive offers. CMAs are based on the value of similar properties recently sold in the same area, also known as comparable properties or “comps.” It’s adjusted to take into account the condition, size and special features of the home. With that information, real estate professionals can help sellers set a fair sales price for a home, based on the prices of those similar to it.

CMAs provide data-driven insights that help buyers and sellers make better informed decisions and help real estate pros assess the competition in the local market. A CMA can also provide a competitive advantage, allowing agents to justify and support their pricing recommendations to their clients.

What Factors Contribute To A Comparative Market Analysis?

Beyond similar properties sold recently, a good comparative market analysis should take a few items from the property description into account.

Location Of Property

If a home is in an area that’s in high demand, it might be worth more than a bigger, “better on paper” home in a less desirable neighborhood. For instance, if a home overlooks the ocean, it may be worth more than a home that doesn’t overlook any kind of waterfront.

Square Footage

The larger the home, the higher the price tends to be. Homes with greater square footage often sell for more than those with less, making this an important point to consider.

Condition Of Property

The condition and age of a property is a very important point to look at. No one wants to live in a house that looks like it’s condemned. If a house has notable foundation or roof damage, it could take a serious toll on the value. Homes that have been renovated recently or new construction built with high-end materials are more valuable. However, a historic home that’s in good condition can have a higher purchasing price.

Type Of Financing

The type of financing used to buy a property impacts the comparative market analysis. If seller concessions are included, such as covering closing costs or making repairs before sale, then the value of these concessions is subtracted from the purchase price.

How Are CMAs In Real Estate Conducted?

To conduct the analysis, the real estate agent or REALTOR® searches for similar homes recently sold in the same area. These comparable homes, or comps, are used to conduct a sales comparison for pricing purposes.

Real Estate Agent

Preparing a CMA requires some expertise and takes a lot of data into account – from market trends to the prices of homes nearby and the value of their various features and potential renovations.

For this reason, your CMA should be prepared by your real estate agent. They know the market, attend open houses, note the features that distinguish one home from another and pay close attention to subtle changes in the market. They also have access to the multiple listing service (MLS) and other CMA tools to help them get it right.

To help you find an agent that will go the extra mile for you, make sure to:

 

The Rule Of Three

To perform a CMA, a real estate agent or REALTOR® will follow the “rule of three.” The agent will find at least three homes that have sold within the past 6 months that are as similar and close in proximity to the house being bought or sold as possible.

This method works well for established neighborhoods with similar houses, but can create problems for rural buyers and sellers who don’t have as many direct counterparts to compare to. USDA loans are available to help those with appraisal problems in rural areas, but are not provided by all lenders.

Once the agent reviews the three homes, details are picked out that differ from the home being evaluated. After these differences are listed and priced out, the sales price of each comparable property is adjusted to determine the cost if they were almost the same as the subject property and sold in the current market.

Building A Competitive Offer

A competitive offer is an attractive offer made by a prospective buyer that stands out in a competitive market. Competitive offers typically have a higher chance of being considered or accepted by the seller. Building a reasonable offer for a house is crucial in real estate, especially in a hot seller’s market where demand is high and supply is low.

Sellers must also consider pricing their homes based on the local market because it directly impacts the success of their home sale. A home that is priced appropriately can attract multiple offers and create a competitive bidding environment. On the other hand, a home that is priced too high can result in fewer offers and less room for negotiation. Meanwhile, a home that is priced too low will be a missed opportunity for the seller to make more money on their home.

Example Of A Comparative Market Analysis

Let’s look at an example of how a comparative market analysis would help a home seller. A homeowner wants to sell their home but needs some help with pricing. They ask their real estate agent to run a CMA to help them price their home according to what similar homes have sold for in the same area within the last several months.

Here’s the information that the real estate agent gathered about the property:

Based on three recently sold homes within a half-mile radius of the subject property that are similar in size, age and features, the real estate agent will analyze the sales data and put together a CMA. After looking at the list of differences between the subject property and the comps, the agent gets a price breakdown of each feature to determine how these affect the home’s overall value. Using this information, the sales price is then adjusted to account for these differences.

Based on the analysis of the comp properties and the adjustments made, the agent determines an estimated market value for the subject property. Finally, the agent presents the CMA to the homeowner, which provides an overview of the comp properties, the adjustments and the estimated market value for their home. The homeowner can then use the CMA to more accurately price their home and list it on the market.

FAQs For CMAs

Here are frequently asked questions for CMAs in real estate.

What is the first step of a CMA?

The first step of a CMA is to gather all the information on the subject property. The real estate agent or REALTOR^® needs this information to find similar properties that recently sold in the area.

Is comparative market analysis the same as an appraisal?

A CMA comes up with an estimate for the value of a home – and so does an appraisal. However, a CMA is something performed by a real estate agent or REALTOR^® to determine a listing price or help you formulate an offer on a house while an appraisal is a more formal inspection of your home done by a licensed appraiser on behalf of a bank or financial institution.

Who conducts the CMA in real estate?

A listing agent or buyer’s agent typically performs a CMA in real estate. You can perform a CMA yourself, though it will be difficult to do it accurately without the resources that real estate agents have at their disposal.

What happens after the CMA?

After the homeowner is presented with the CMA, they can use this information to help set an asking price. Conversely, buyers can use a CMA to make competitive offers.

The Bottom Line: CMAs In Real Estate Can Be Essential

A CMA performed by a real estate professional is a great way to find out the approximate value of a home and can be extremely useful to both sellers and home buyers alike. It’s a very useful tool that can yield valuable data that can help you negotiate to reach a fair purchase price.

Ready to take the first step on your journey toward homeownership?