What Is a Comparative Market Analysis?
A comparative market analysis (CMA) is a critical tool used in the real estate industry to estimate a home’s price by analyzing recently sold properties in the same area that are similar in features. This analysis assists sellers in setting appropriate listing prices and enables buyers to make competitive offers. You can even conduct your own CMA by researching comparable properties, also known as “comps,” on popular real estate listing websites such as realtor.com.
**Key Takeaways:**
- A CMA is an estimate of a home’s price used to guide sellers in setting listing prices and aid buyers in making competitive offers.
- The analysis considers factors like location, age, size, construction, style, and condition of the property and comparable homes.
- To obtain a CMA for a specific property, reach out to a local real estate agent or broker, or conduct your research by comparing properties online.
Understanding Comparative Market Analysis
A crucial aspect of the real estate process, a comparative market analysis supports sellers in determining optimal listing prices for their homes. This price strikes a balance to ensure that it’s not too low to result in financial loss for the seller or too high to deter potential buyers. For buyers, a CMA verifies if a home aligns with its price range and aids in formulating competitive yet reasonable offers.
Ideally, a CMA compares a property to similar homes in terms of location, size, and features. It’s preferred to use recently sold homes from the same neighborhood for an accurate assessment. However, in markets with low activity, finding recent sales may be challenging, and in such cases, opting for a formal appraisal could be more appropriate.
It’s essential to note that a comparative market analysis is an estimate, and real estate agents and brokers are authorized to conduct CMAs without an appraiser’s license when assisting clients.
What’s in a CMA Report?
When a real estate agent or broker conducts a comparative market analysis, they prepare a comprehensive report detailing their findings. Although there’s no fixed template for a CMA report, some states mandate specific information to be included in the reports.
A typical CMA report includes essential details such as:
- The property’s address and three to five comparable properties
- Description of each property, including elevation, floor plan, bedrooms, and bathrooms
- Square footage of each property
- Sales price of each comparable property
- Dollar adjustments for any disparities
- Adjusted sold price per square foot for each comp
- A reasonable price range for the property
CMA vs. Appraisal
A CMA, typically conducted by a real estate agent, seller, or buyer, involves estimating a property’s price using comparable homes to aid in negotiation.
In contrast, an appraisal requires a state-licensed appraiser to assess similar homes based on size, layout, and location to determine the property’s market value. The appraisal value is crucial for lenders to determine a buyer’s approved loan amount.
While a CMA determines a home’s price, an appraisal determines its value—price reflects the amount paid, whereas value signifies its actual worth.
How to Do a Comparative Market Analysis
Conducting a CMA involves more than just comparing recent sale prices in the area. Here’s a guide on the fundamental steps for creating an accurate CMA:
1. Evaluate the Neighborhood
To establish the right listing price or evaluate a potential purchase, a CMA should assess the overall quality of the neighborhood. Factors such as desirable locations, community amenities, nuisances, HOA rules, school proximity, and curb appeal play a significant role in this assessment.
2. Gather Details About the Property
If a real estate agent is conducting the CMA, they will examine the existing listing (if available) and conduct a visit to gather property details. They will consider aspects like size, age, style, construction, condition, layout, finishes, landscaping, upgrades, and updates.
3. Select Comps
Identify three to five comparable properties sold recently within close proximity to the subject property. The selected comps should ideally be within a mile radius and in the same school district. Focus on properties with similar square footage, lot size, bedrooms, bathrooms, and construction type. Recent sale dates are crucial, as real estate prices can fluctuate rapidly.
If the property has a unique location feature, ensure the comps also share similar placement, such as overlooking a golf course or waterfront.
4. Adjust for Differences
Next, adjust for variations between the subject property and each comp. Skilled real estate professionals can assign prices to differences and make corresponding adjustments to each comp’s price. Contrary to intuition, if a comp has a superior feature, a positive adjustment is made to its price, and vice versa for inferior features.
For instance, if a comp has an extra bedroom (a superior feature), it’s logical to deduct an amount from its price to account for this feature. This methodology ensures a fair comparison among properties, without adjusting the target property’s price.
5. Determine the Price Per Square Foot After Adjustments
Following adjustments, calculate the price per square foot for each comp by dividing the adjusted price by the square footage. Then, determine the average sold price per square foot by aggregating all comp prices and dividing by the total comps. Multiply this average by the property’s square footage to estimate its price.
Example of a Comparative Market Analysis
Many real estate professionals use software to generate detailed and visually appealing CMA reports. For those creating their own, using a spreadsheet or online home-price tools from real estate websites can be helpful. Below is an illustration of a typical CMA report.
A sample report.
Is a CMA as Good as an Appraisal?
A comparative market analysis provides a fair price range for a property but is not as refined or precise as an appraisal performed by a licensed and certified appraiser, according to lenders and real estate experts.
What Does a CMA Include?
A CMA typically compares a property’s key features like location, size, style, condition, and materials with similar properties sold within the last six months to determine an estimated price.
What Is the Purpose of a CMA?
A CMA aids sellers in setting a reasonable listing price and helps buyers evaluate if the asking price aligns with the property’s value.
What Is the Biggest Difference Between a CMA and an Appraisal?
A CMA can be performed by agents, brokers, buyers, or sellers, whereas only a licensed and state-certified appraiser can conduct an appraisal.
The Bottom Line
Optimal comps are those most similar to the property, recently sold, and requiring minimal adjustments. Market conditions may necessitate slight price adjustments—such as higher prices in a hot market or lower prices in a competitive market with a surplus of similar properties.