A Comparative Market Analysis (CMA) sounds intimidating, but it’s a core skill for any real estate agent. Whether you’re setting the listing price for a selling client or helping a prospective buyer gauge a potential offer, the CMA helps you understand a property’s true market value. Thankfully, creating a simple CMA doesn’t have to be overly complex.
What is a CMA?
A CMA is a detailed evaluation of the local real estate market. It primarily focuses on properties similar to the one you are assessing, often referred to as the “subject property”. The analysis compares your property against others that have recently sold, are currently on the market, or didnāt sell. The objective is to estimate a realistic price that buyers might be willing to pay or to help sellers set a competitive asking price.
Steps to Create a Simple CMA
1. Find Your Comps
“Comps,” short for comparables, are crucial in determining the right price for your property. They are properties that have recently sold and share key characteristics with the subject property you’re evaluating. Hereās what to consider when selecting your comps:
Location
Choose properties within the same neighborhood or similar areas to ensure the comparison is relevant. Location influences property value significantly due to factors like school districts, local amenities, and community attributes.
Square Footage
Look for properties with a similar size to ensure a fair comparison. Large differences in living space can lead to substantial price disparities.
Number of Bedrooms/Bathrooms
Aim to match the number of bedrooms and bathrooms. These features are major factors in a buyer’s decision-making process and directly affect property value.
Type of Property
Ensure the comps are of the same type as your propertyābe it detached houses, condominiums, townhouses, etc. Different types of properties cater to different market segments and can vary widely in price.
Condition
Assess the overall condition and upkeep of the comparable properties. Take into account the age of the property, any recent upgrades (like a renovated kitchen or a new roof), and ongoing maintenance. Adjustments may need to be made if your property is newer or older than the comps or if it features significant upgrades or deficiencies.
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2. Gather Your Data
Collecting accurate data is fundamental to performing a reliable Comparative Market Analysis. For each comparable property, as well as your subject property, you should gather the following essential information:
Recent Sale Price
This is the price at which the property most recently sold. It reflects the actual market value that buyers are willing to pay under current market conditions.
Days on Market (DOM)
This measures how long the property was listed for sale before it sold. A lower DOM often indicates a strong demand, while a higher DOM may suggest that the property was overpriced or has less desirable features.
Special Features or Issues
Note any unique attributes or challenges of the property. This includes positive features such as swimming pools, updated kitchens, or prime location attributes. Also consider negative factors such as needed repairs, outdated systems, or proximity to less desirable features like busy roads.
Source of Information
While various resources are available, many real estate professionals rely on their local Multiple Listing Service (MLS) for the most comprehensive and up-to-date data. The MLS provides detailed listings that include all the above points and often more, making it an invaluable tool for conducting a thorough analysis.
3. Making Adjustments
In a Comparative Market Analysis, adjustments are essential because it’s rare for comparables to match your subject property exactly.
Superior Features
If your subject property possesses advantages over a compāsuch as an additional bathroom, a larger deck, or advanced home technologiesāyou should adjust the compās sale price upwards. This reflects the added value these features contribute.
Inferior Features
Conversely, if the comp boasts features that your property lacksālike a more expansive yard, superior views, or high-end finishesāreduce the estimated value of your property accordingly. This helps align the price with what the market might expect for a property with fewer desirable attributes.
Assessing Value
These adjustments, while crucial, do carry a degree of subjectivity. It’s important to understand what attributes are most valued in your specific market. Research recent buyer trends, and consider conducting surveys if necessary. The goal is to gauge accurately how much value different features add or subtract from a property.
4. Determine the Price Range
Once you’ve made the necessary adjustments to the sale prices of your comparables, you will derive a range of adjusted values. This range is crucial as it indicates the likely market value of your subject property based on current conditions and similar sold properties.
Interpreting the Range
The lowest and highest values in this range reflect the potential variation in price due to differences in property features and market conditions. This spectrum allows you to understand the flexibility and limits within which you can price your property.
Setting Realistic Expectations
With this range in hand, you can guide your client towards setting realistic expectations. Explain how properties at the lower end may lack certain desirable features or might have taken longer to sell, while those at the higher end included premium features or were in high-demand locations.
Final Decision on Pricing
Use this range as a foundation for a strategic discussion with your client about pricing. Consider not only the propertyās characteristics and how it compares to others but also external factors such as market trends and buyer demand. This holistic approach helps in deciding a competitive yet realistic listing price that aims to attract buyers while providing a good return.
Things to Remember
While CMAs are instrumental in real estate transactions, it’s essential to distinguish them from formal appraisals and understand the value of local expertise and technological tools.
CMAs vs. Appraisals
It’s crucial to recognize that a Comparative Market Analysis is not the same as a formal appraisal. An appraisal is a comprehensive evaluation conducted by a licensed professional and is often required by lenders before approving a loan. In contrast, a CMA is a tool used by real estate agents to gauge the property’s value within the current market based on comparable sales.
Utilizing Software
Numerous software solutions and online services can help streamline the process of creating a CMA. These tools often provide access to extensive databases of property listings and sales records, making it easier to find and adjust comps. While software can enhance accuracy and efficiency, understanding the basics of how to perform a CMA manually is also valuable.
The Importance of Local Expertise
Perhaps the most crucial element in creating an accurate CMA is your knowledge of the local market. Understanding the nuances of local micro-markets and recognizing the features that buyers in your area value most are what make a CMA truly reliable. This expertise allows you to make informed adjustments that reflect the local buyers’ preferences and current market trends.
Let a CMA be Your Guide
A simple CMA can be a powerful tool. It adds an objective element to pricing discussions and builds trust by demonstrating market knowledge.
Explore More
Stuccco – How to Do a Comparative Market Analysis
National Association of Realtors – Seven Steps for Creating a Useful CMA
