Comparative Market Analysis (CMA)
A comparative market analysis is a tool used by real estate agents to estimate the value of a specific property by evaluating similar properties that have recently sold in the same geographical area. It is always challenging to estimate the fair market value of a home because there are many factors that go into determining how much a specific property is worth.
When people who are buying or selling a house think of factors that impact the price, they generally consider the location, condition, square footage, size of the lot, if applicable, the number of bedrooms and bathrooms, and any unique features. All buyers and sellers want to see their agent's CMA.
Preparation of a Comparative Market Analysis
In order to conduct an analysis, agents must search for recently sold homes in the same geographical area that are as similar to the subject property as possible.
These houses, which are known as comps, or comparable sales, are used to conduct a sales comparison approach to pricing. This approach relies on the premise that you can reliably determine how much a houses is worth by identifying how much it would cost to purchase a similar house in a similar location.
The Rule of Three
The first step for a real estate agent preparing a CMA is to find at least three homes that have sold within the past 3 to 6 months. These three homes should be as similar and located as closely to the subject as possible.
Once at least three comps are selected, each one is thoroughly examined to determine how it differs from the subject home. After the differences are itemized and priced out, the sales price of each comp is adjusted to determine how much it would cost if it were nearly identical to the subject property and sold in the current market. This is not easy to accomplish and requires great skill.
How Real Estate CMAs Differ From Appraisals
Whereas a comparative market analysis uses similar data to compare and identify home values, it is not considered an official home appraisal. Appraisals are. prepared by licensed appraisers to determine home valuations; CMAs are prepared by licensed real estate agents to estimate the fair market value.
The process of Completing A Comparative Market Analysis?
The analysis starts with the agent compiling a list of at least three similar properties within the same geographical area that have sold in the last 3 to 6 months. If there isn't enough sales data, an agent may also select properties that are currently listed for sale or pending. Even expired listings can be used to demonstrate the prices that are too • Location: The best comps will be located in the same neighborhood as the subject property. However, if there haven't been enough recent sales in the area to complete the CMA, the agent will need to select comps located in an area that is considered similar.
Following is a list of components that go into creating a CMA:
- Lot size: The lot size is a major factor in determining the market value of a house. Differences in even 2,000 square feet can have a material impact on a home's price.
- Square footage: The larger the house, the higher the value. Therefore, the extent of livable square footage can be equally as important as the number of rooms within the house.
- Age and condition of the property: The year the house was built and whether it's been renovated are factors that effect the value. Newer construction and homes built with high-end materials are generally considered more valuable.
- Number of bedrooms and bathrooms: The more bedrooms and bathrooms a home has, the higher its value.
- Special amenities: Amenities such as fireplaces, covered patios, swimming pools, spas, enclosed garages, etc are taken into consideration.
- Date of sales: The comps chosen should have sold within the last 3 to 6 months. If sale dates are not recent, sales prices must be adjusted to reflect how the market has changed. Market conditions are always changing.
- Terms of financing and sale: The type of financing a buyer uses to purchase a house can impact the purchase price, as can the terms of a sale. All cash with no contingencies always brings a lower price.high to attract buyers.