Comparative market analysis (CMA) is an essential tool used by real estate agents and home buyers/sellers to determine a home’s market value and set a competitive listing price. A CMA compares the subject property with similar recently sold homes in the area referred to as “comps” to estimate the market value of the property.
CMAs play a vital role in real estate transactions by helping sellers price their homes appropriately and assisting buyers in making informed offers. This article provides a comprehensive guide on what CMA is, and how to use comparative market analysis in Real Estate.
What is Comparative Market Analysis (CMA)?
A comparative market analysis is a report prepared by real estate agents that determines the estimated market value of a home based on an analysis of recent sales of comparable homes. It compares the subject property to similar properties that have recently sold in the same area.
The analysis looks at the location, square footage, age, style, condition, and amenities of the subject property and compares them to the selected comps. By analyzing the differences between the subject property and the comps, adjustments can be made to the sale prices of the comps to estimate the market value of the subject home.
Why is CMA Important in Real Estate?
CMAs serve several important purposes in real estate transactions:
- Helps sellers price their home competitively: The CMA gives sellers a data-driven estimate of their home’s market value. This helps them price their home competitively to sell quickly and for the maximum price. Overpricing can lead to lack of offers, while underpricing leaves money on the table.
- Assists buyers in making fair offers: For buyers, the CMA helps them determine a fair offer price on a home. It prevents them from overpaying while still submitting a competitive bid likely to be accepted.
- Determines listing price: Agents use CMAs to guide sellers in setting the ideal listing price to kickstart a bidding war. Optimal listing prices attract more buyers.
- Substantiates offers: CMAs help agents back up their recommended offer prices for buyers with data-driven reports. This lends credibility and confidence in the suggested pricing.
- Benchmark for negotiations: CMAs give buyers and sellers a reference point to negotiate on price. Both parties have a data-based range to begin negotiations.
Overall, a comparative market analysis is crucial for pricing a property accurately and competitively, leading to the best outcome for both buyers and sellers.
How to Conduct a Comparative Market Analysis
Conducting a thorough and accurate CMA involves several steps:
1. Gather Details About the Subject Property
- Address, neighborhood, and school district
- Lot size and dimensions
- Home style, stories, construction materials
- Square footage of home and rooms
- Number of bedrooms, bathrooms, and other rooms
- Age and condition of property
- Upgrades and updates like kitchen, flooring, HVAC
- Special features like pool, deck, garage, fireplace
Inspect the home thoroughly and take notes of all amenities and features. Review property records for original details. Talk to sellers to learn about upgrades.
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2. Select Comparable Properties
Identify 3-5 recently sold homes similar to the subject property based on:
- Location – Ideally within 1 mile radius
- Home style and size – Within 10% of total square footage
- Number of bedrooms, bathrooms, and other rooms
- Lot size – Comparable acreage for rural properties
- Construction materials and age – Within 5 years of subject home
- Condition – Similar upgrades and improvements
- Special features – Match unique aspects like waterfront or golf course
Search property records and MLS listings for sold comps in the past 6 months. The more similar the comps, the fewer adjustments needed.
3. Compare and Adjust the Comps
Compare each comp to the subject property and adjust their sales price based on differences:
- Add adjustments for any inferior features in the comp
- Subtract adjustments for any superior features
- Assign dollar values to each difference in amenities, condition, upgrades, etc.
- Account for differences in location, lot size, garages, basements, etc.
- Adjust using square footage and number of bedrooms/bathrooms
Work with an appraiser or use real estate software to assign accurate dollar values to differences. Recent comps with fewest adjustments hold greatest weight.
4. Determine Price Per Square Foot of Comps
For each comp, divide the adjusted sale price by the total square footage. This yields the adjusted price per square foot of each comp.
5. Calculate Estimated Value of Subject Property
Add up the adjusted price per square foot of all comps and divide by the number of comps to get the average price per square foot. Finally, multiply the average price per square foot by the total square footage of the subject home.
Make any final tweaks based on comp similarities, market trends, and agent recommendations.
Key Data Points for an Accurate CMA
To perform an accurate comparative market analysis, focus on gathering detailed data on the following aspects of each property:
Subject Property
- Address and neighborhood
- Lot size
- Living area square footage
- Total number of bedrooms and bathrooms
- Floor plan and layout
- Construction materials and architectural style
- Overall condition and upgrades
- Special amenities like pool, deck, etc.
- Garage/basement details
Comparable Properties
- Address
- Sale price and sale date
- Total square footage
- Number of bedrooms and bathrooms
- Lot size
- Construction materials
- Condition and upgrades
- Garage/basement details
- Special amenities
Once a thorough comparative market analysis has been completed, real estate agents can use the data and estimated home value to guide their clients’ pricing strategies.
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For Sellers: Setting a List Price
For sellers, the CMA provides a data-driven recommended list price for their home. However, listing at the exact estimated value may not be optimal. Common pricing strategies include:
- Price slightly below CMA estimate: Generating a bidding war above value.
- Price slightly above: Leaving room for negotiation down to estimated value.
- List at CMA estimate: Balanced approach, especially in softer markets.
- Factor in market conditions: Adjust strategy based on inventory levels and buyer demand.
Work closely with your agent to determine the optimal listing price and leverage the CMA to your advantage.
For Buyers: Determining an Offer Price
The CMA gives homebuyers an estimate of what the property is worth. Buyers can use this to inform their offer strategy:
- Offer at lower end of CMA range: Attempt to negotiate up to estimated value.
- Offer at higher end of range: More competitive bid while still leaving savings.
- Offer at CMA estimated value: Reasonable offer likely to be considered.
- Factor in market competition: Adjust strategy based on bidding war climate.
Draft an offer that balances affordability for you and competitiveness with the seller.
As a Negotiation Tool
During negotiations, both buyers and sellers can use the CMA details to:
- Support suggested listing and offer prices
- Back up arguments for increasing or decreasing price
- Establish a fair market value reference point
- Remain data-driven rather than emotional
The CMA provides an impartial starting point to find common ground. Both parties should aim for a final negotiated price as close to the CMA estimate as possible.
Comparative Market Analysis vs. Appraisal
While CMA and appraisals both aim to determine market value, there are some key differences between the two:
Comparative Market Analysis:
- Performed by real estate agents or homeowners
- Uses recent sales of comparable properties
- Provides an estimated value range
- Used to guide pricing strategies
- Completed before home is placed on market
Appraisal:
- Performed only by licensed appraisers
- Uses comparable sales and additional valuation methods
- Provides a single exact appraised value
- Used to confirm loan amounts for lenders
- Completed after sales contract is signed
The CMA provides a ballpark figure early on, while the appraisal offers a definite value for securing financing once the transaction is underway.
CMA vs. Automated Valuation Models (AVMs)
In addition to appraisals, CMAs are also often contrasted with automated valuation models (AVMs) like Zestimates. AVMs use algorithms to estimate home values based on public data and comparable sales.
The key advantage of CMAs performed by agents is they combine data with local real-time market knowledge. AVMs may miss nuances that impact pricing. CMAs also provide actionable advice on pricing strategy versus just a valuation figure.
Overall, CMAs deliver greater accuracy and insight compared to AVMs for both listing and making offers.
Tips for an Accurate Comparative Market Analysis
Follow these best practices when creating or using a CMA report:
- Select recently sold comps within the past 6 months in close proximity
- Choose comps with the fewest differences requiring adjustments
- Use an appraiser or software to assign dollar values to differences
- Weigh the most similar comps more heavily in final value estimate
- Factor in any changes in market conditions since comps sold
- Drive by comps to verify condition and make notes of renovations
- Consider seeking a broker price opinion (BPO) or appraisal for unique homes
- For rural properties, take acreage out of equation to compare home prices
- Request CMAs from 1-2 additional agents to confirm accuracy
- Align final list or offer price with agent recommendations
Questions to Ask Your Agent About a CMA
As a buyer or seller, ask your real estate agent key questions when reviewing your CMA report:
- What was your process and data sources for selecting the comparable properties?
- How did you determine the dollar amount adjustments between the subject property and comps?
- Do you have additional details on the condition and upgrades for each comp property?
- What are the most significant differences between the comps and the subject property?
- How much weight did you assign to each comp in your final valuation?
- How have market conditions changed since the comp sales that could affect the price?
- How does the estimated value align with your experience in this specific area and price range?
- What listing price would you recommend based on this CMA and current market forces?
- What offer price range would you suggest to be competitive but fair based on the CMA estimate?
Asking strategic questions will provide added insight into how the agent performed the analysis and determined the final value recommendations.
Useful Tools for Real Estate CMAs
CMA software, mobile apps, and real estate sites help agents quickly compile CMA reports and enable homeowners to conduct DIY analyses. Some top options include:
- Real Estate Web Sites: Realtor.com, Zillow, Redfin – allow searching and sorting recently sold home listings
- CMA Software: Cloud CMA, iCMA, Dash CMA – compile and adjust comps and generate full reports
- Mobile Apps: CMA Calculator, Search Home Price, Just CMA It – create basic CMAs adjusted for differences on the go
- MLS Database: Multiple listing services provide the most comprehensive comparable property data
Leverage technology to efficiently analyze comps and supplement with local real estate expertise.
To Recap
A comparative market analysis is an invaluable data-driven tool used by both real estate agents and their clients to accurately determine a home’s fair market value based on recently sold comparable properties.
CMAs allow home sellers to optimize their listing price to maximize sale price and expedite selling. For buyers, it provides assurance they are submitting a competitive offer without overpaying.
While DIY CMAs are possible, agents have access to more robust data and expertise to adjust for differences between properties. Savvy real estate players use CMAs to substantiate their pricing recommendations with hard numbers.
By mastering how to effectively conduct, analyze and apply a comparative market analysis, home buyers and sellers can leverage this information to improve their strategic positioning and negotiation stance. A data-driven CMA clarifies the true current value of the property, benefiting both sides of the transaction.
FAQs About Real Estate Comparative Market Analysis
What is included in a CMA report?
A comparative market analysis report typically includes the address, photos, square footage, number of bedrooms/bathrooms, list of amenities, and sale price for the subject property and 3-5 recently sold comparable properties. It adjusts the comp sale prices and calculates an estimated value range for the subject home.
How many comparable properties should be included?
Ideally 3-5 recently sold comparable properties that are very similar to the subject home in terms of location, size, condition, and features. More comps provide greater accuracy, but too many dissimilar comps skew the analysis.
Can a homeowner perform their own CMA without an agent?
Yes, homeowners can conduct DIY CMAs by searching real estate sites for recently sold homes in the same neighborhood with similar square footage and features. Adjusting for differences accurately is harder without professional expertise.
How often should you update a CMA during listing?
In highly competitive markets, CMAs should be updated frequently, such as every 2-4 weeks. This allows you to fine tune your listing price based on the latest sales data and market shifts in real time.
How much should listing price deviate from CMA value?
Ideally no more than 5-10% above or below the estimated CMA value. Larger deviations risk over/under-pricing significantly. Small differences allow room for negotiations centered around the CMA price.
Does CMA estimate consider renovations and staging?
No – the analysis relies on publicly available data. Upgrades and staging completed after the CMA can further increase market value. Alert your agent to maximize the impact of improvements.
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