Comparative Market Analysis or CMA is a term used by real estate agents and home sellers to help them determine the current market value. CMA is an appraisal-type report which includes detailed information on homes or properties that have recently sold and those currently for sale in the area.
Comparative market analysis may be performed as part of a pre-listing inspection, during a formal appraisal process, or as an informal reference check. A good CMA will provide information on recently sold homes and those currently listed on the local MLS system. The valuation information most beneficial to the home seller is the sales price, sale date, and neighbourhood statistics.
A Comparative Market Analysis is critical because it helps sellers set a list price for their home, indicates what other similar homes are listed for in the area, and lets them know what buyers are currently paying for homes. A CMA is not always 100% accurate, but it can be beneficial if you’re trying to sell your house fast.
It works when an agent or appraiser analyzes recent home sales in a specific neighbourhood. These sales are compared with similar homes currently on the market, affecting current appraisal values and accurately assessing the property’s worth. A CMA is most useful when you have limited knowledge of market conditions for your area.
Some of its benefits include helping a home seller determine what price to list a property for sale. It is often used as part of the pre-listing package a Realtor provides to their client before they market with the listing. It gives the client an idea of what homes are selling for currently in their area and can help them set an asking price that they hope will attract interested buyers.
What is a Comparative Market Analysis (CMA) in Real Estate?
A Comparative Market Analysis (CMA) is the process of comparing homes for sale in a specific area with similar amenities and features to determine value. Also known as a CMA or home appraisal, this is one of the most valuable tools you can use to assist you in setting your asking price when selling your home – and ultimately getting top dollar for it.
A comparative market analysis can help you figure out how much work your house needs and what the most expensive repairs might be – so that you know how to price your home competitively from the start. Whether you are selling a large luxury estate or a smaller starter house, this data can be invaluable when putting together an accurate asking price.
Some of its benefits include helping a home seller determine what price to list a property for sale. It is often used as part of the pre-listing package a Realtor provides to their client before they market with the listing. It gives the client an idea of what homes are selling for currently in their area and can help them set an asking price that they hope will attract interested buyers.
CMA also has drawbacks, like it can be inaccurate, and it doesn’t necessarily give exact prices. When the home is sold, the comparable sales data becomes irrelevant and is no longer relevant to future buyers. A CMA does not necessarily show a seller what their home is worth, and it is not meant to be used as an appraisal for mortgage purposes or as an official means to establish tax value.
What does Comparative Market Analysis (CMA) Report Contain?
A good CMA will provide information on recently sold homes and those currently listed on the local MLS system. The valuation information most advantageous to the home seller is the sales price, sale date, and neighbourhood statistics. Some of the CMA reports contain:
- Location: The location of your home is essential as it will help potential buyers determine whether they would want to live in the area and how far it is from amenities, jobs, and schools.
- Price: By looking at what similar homes have recently sold for in the same neighbourhood, you can get an idea of how much your home might be worth.
- Size: This helps people determine the value of your home as they would know how much bigger or smaller it is and whether that size difference would affect their decision-making.
- Style: A CMA will show a homebuyer what type of exterior and interior features a house has – which can be helpful to them in determining whether they would want a particular style in their place. For example, a CMA will show a garage and how many rooms the home has. A buyer can then consider whether or not they would want these features in their new home.
- Lot Size: This helps buyers determine how large a property is and whether it would suit their needs. It might also help them get an idea of what size of a garden they could expect and if there is enough space to add on extra rooms.
- Fair Market Value: During a CMA, the Realtor will note what homes in the neighbourhood are worth. It is helpful for people who don’t want to price their homes too high and miss out on potential buyers.
How to Do a Comparative Market Analysis
There are simple steps to do a comparative market analysis to give you an idea of what price to list your home for. These steps include the following.
- Examine the surrounding area.
- Gather information on the property in question.
- Find three to five similar properties in the neighbourhood.
- Adjust for differences between subject homes and similar properties.
1. Examine the surrounding area.
The first step in doing a CMA is to look around the neighbourhood and get an idea of what people are buying there. You can do this by looking at sale signs or checking out the homes currently listed on the MLS system. The idea here is to get an idea of what other houses in the area are selling for so that you can use it in determining what price to list your home for.
It’s important because you want to understand the current market and get a sense of what houses are selling for to determine which price range you should list your house at.
Examining the area requires you to look at the location of your home and the neighbouring houses. The more details you have about these homes, the better. For instance, a place that is a little closer to a significant road might fetch a higher price than one that isn’t as close – even if they have similar interior and exterior features. You will then use this information for your CMA.
2. Gather information on the property in question.
You will want to know the type of construction used, how many rooms it has, and other details that might help determine a selling price. This step is essential since it will allow you to compare your home to other similar properties.
Ensure that you get information on the size of the lot, the number of bathrooms, and any other features that might be a potential selling point. It is also where you will put your home’s advantages over the competition to gain a competitive advantage during negotiations.
For instance, if you have a bigger house than others in the area but are not charging more than these homes, you might convince a buyer that they should pay more for your home because yours is more significant than the others in the neighbourhood.
This step requires you to survey your home to determine what type of exterior and interior design it has. It will be vital to ensure that your data is as accurate as possible when doing the CMA later on.
3. Find three to five similar properties in the neighbourhood.
Find similar properties near you listed on the MLS that you can use for comparison when doing your CMA. It will allow you to determine what other homes in the area have sold so that you can price your home competitively.
One way to do this is by narrowing down the neighbourhood. For example, if you are in a town with many foreclosure properties, try focusing only on the initially listed for sale at around $350,000 or above. Continue researching until you have found 3-5 homes that are similar to your home so that you can use the information for your CMA later on.
Doing this step requires you to go through listings in the MLS system and find listings of similar properties to yours in size, condition, features, etc. Try to use recent listings since they are likely to have accurate data relevant to your CMA.
4. Adjust for differences between subject home and similar properties.
Another step of the CMA is to make adjustments for differences between your home and comps. If your house is a year older than the other homes in the area, you might have to adjust its selling price down a little bit for it to sell faster. There are also various features that you can add to make your home stand out from the competition and adjust for these differences.
For instance, if another house in the area has a swimming pool and this is a big selling point, you might have to lower your asking price or add a discount to attract buyers who want that feature even though it’s not included in your property.
It is an essential step of the CMA because you need to explain any deviations between your home and similar ones in the area. You can do this by adding language that describes how your house is better than others, has more features, or any other relevant information that might help justify an increased price.
It requires you to use the data you gathered during steps 1-3. Using this information, you will create a report with all the relevant facts and figures about your house’s condition and comparisons to similar homes in the area.
5. After making the necessary modifications, calculate the sales price per square foot.
Once you have completed the first four steps, it is essential to calculate what you spent on renovations to your home. It will come in handy later because if you are planning on making any improvements after putting it up for sale, you can estimate how much these changes will cost and incorporate them into your price accordingly.
Find out the price per square foot of comps by dividing total sales price by total square footage. It will be important because this data is universal and can be used to compare different properties or neighbourhoods.
Calculating the sales price per square of food requires you to take your home’s total square footage and its total sales price. The per square foot will be calculated by dividing the total sales price by the total square footage of your home.
What is the Example of Comparative Market Analysis?
In a typical comparative market analysis, the real estate agent gathers similar properties to the subject property and then calculates what those homes sold for and other relevant information. It has been outlined in detail above, along with some examples of completing your CMA report.
To calculate CMA, you must first gather the necessary data, including similar properties in your neighbourhood. You can find these by going through listings on an MLS site and looking for recently sold homes with similar square footage, features, etc. Once you have found 3-4 comps to yours, it is time to calculate adjustments that need to be made.
An excellent example of a CMA is a single-family home with a finished basement that currently doesn’t have anything. The comps you find all have finished basements, and this might be a significant determining factor for potential buyers, so the asking price of your house might need to go down a bit if there’s no feature included with it. Another example is your home had one fireplace, and comps have two, so you might need to make adjustments to get it sold quickly.
What is the difference between an Appraisal and a CMA?
CMA is a preemptive step of the sale process, whereas an appraisal is reactive. It is crucial to get a CMA to have a better idea of what kind of price your home should go for and how it compares to similar properties in the area. On the other hand, an appraisal occurs after a deal has been made and provides interested parties with a professional opinion of your home’s market value.
One more difference is that the appraisal is ordered by the person buying the house, whereas a CMA is required by most lending institutions when you apply for a loan to purchase a home or refinance an existing mortgage.
Appraisal and a CMA have similarities as well they both can cause you to lose a deal if your opinion of value is too high or too low. One difference between the two is that the appraisal has a set price while a CMA doesn’t, which means it can go up and down depending on market conditions and other factors.