What Is A Comparative Market Analysis?: 5 Points to Know
- What Is A Comparative Market Analysis?
- Why Do I Need A Comparative Market Analysis?
- How Is A Comparative Market Analysis Conducted?
- How Do Supply and Demand Relate to CMAs?
- What Are Some Limitations to CMAs?
- When Should A CMA Be Completed?
- Is It Ever Too Late to Get A CMA?
Whether you’re a buyer’s agent, seller’s agent, or both, you need to be familiar with what a comparative market analysis (CMA) is. When a home is listed for sale, prospects want to be sure they’re getting a good deal if they buy. Running a CMA is vital to ensuring your seller gets great offers from buyers, which is an important part of relationship selling in real estate.
If you’re a homeowner getting ready to sell, there are probably several questions running through your mind. “How do I know the fair market value of my home?” and “How can I increase the value of my home prior to sale?” are just two examples. These questions can be answered through a CMA.
So, what is a comparative market analysis? Keep reading to find out, including five essential points for homeowners and agents.
What Is A Comparative Market Analysis In Real Estate?
A comparative market analysis (CMA) is a detailed assessment of the value of a real estate property. It allows sellers, buyers, and real estate agents to see how a home stacks up against other homes that have recently sold in the same neighborhood.
As a consumer you may be asking yourself, “But what about my neighborhood?” or “How will I know if it’s worth it?” A CMA is not done just for one property. It’s a long-standing process that’s used to evaluate any home that’s available for sale.
As a homeowner, it’s easy to find comparable sales in your area. Go online and look for real estate in your neighborhood. Take a look at the prices they’re going for and notice what kind of characteristics they have. Use this as an initial benchmark for how much your house may be able to list for.
As an agent, you can compare properties from anywhere in your client’s market, as long as it has been listed within the last six months. It’s much easier and faster comparing homes today than it was even a couple decades ago.
Why Do I Need A Comparative Market Analysis?
A CMA helps you understand the value of your home on a real-world level. Having lived and made memories in your house, this means your home has an emotional value to you that prospective buyers don’t have.
Those interested in your house may love how it looks, but they need to know that it meets their needs, too. Completing a CMA–or having your agent do it for you–is a way of standardizing the price, appeal, and value of your property. Make sure you read how to find a good real estate agent before you request a CMA, though.
A CMA is based on a home’s location, structural integrity, square footage, appearance, and unique features. CMAs also identify any problems with your property so you can get them fixed, or price and market your home more competitively.
A CMA also helps you understand the real estate marketing ideas available for positioning your home to buyers. It takes recent sales, market conditions, and multiple similar properties into account so you aren’t listing your house for too much or too little.
If you’re working with a real estate agent, he or she will offer advice on what to do next.
How Is A Comparative Market Analysis Conducted?
The first step in a CMA is gathering data on houses in the same market area. Once enough information is collected, your agent uses it to predict the future market value of your home.
It’s important to note that a CMA and appraisal are not the same. Appraisals declare the value of a home based on its history; CMAs identify the value of a house based on its future anticipated value. (If you’re learning how to get a home appraisal, though, the process is pretty straightforward.)
The second step is comparing the subject property to other homes in its neighborhood. No matter how great one property is, its location will largely dictate what people are willing to pay for it. Buyers are happy to pay extra for homes in remarkable locations because of the life experiences that come with the home.
The third step is getting feedback on what a good asking price would be for your home from your agent. They will also provide insights on how to maximize your home’s presentation through techniques like staging, photos and video, email marketing tips, and advertising.
How Do Supply and Demand Relate to CMAs?
Supply and demand are economic factors that play a part in any housing market forecast. The difference between demand and supply is the difference between what is needed versus what is available.
When demand is greater than supply, a shortage is created. When supply is greater than demand, an excess is created.
The housing market is affected by the same principles. When there are more homes for sale than buyers, prices drop because demand is low. When there are more buyers than homes for sale, prices increase because demand is high.
A CMA takes such trends into account to price a home accurately. If a home is listed at too high a price, the seller won’t get a good offer price. If the house is priced too low, the seller may get too many offers, or miss a great offer as a result.
What Are Some Limitations To CMAs?
A CMA is an essential part of the home selling process that helps you make informed decisions about your property. That being said, here are a few limitations you should be familiar with:
- The data for your CMA is only as good as the date it’s collected from. The more recent the data, the better. You should be giving your client a comprehensive analysis based on what the near future of their market looks like. That’s only possible by being rigorous with the data you select.
- A CMA is used to predict the future market value of a property based on nearby sales, buyer trends, and home styles that are in demand. To a lesser extent, CMAs rely on a home’s past performance. This is because what appealed to buyers five to 10 years ago may not appeal to them now. Trends are driven by buyers’ savings, generational trends, and personal taste.
- CMAs don’t guarantee a certain listing or sale price; they are simply tools to get a targeted figure. Just because homes in a particular area have recently sold for $300,000 doesn’t mean yours or your client’s will sell for the same price. If you’re learning how to market yourself as a realtor, building trust and rapport with clients is easier when you’re transparent in these conversations.
- A CMA isn’t a perfect way to determine everything that generates value for your home. While it’s great for determining a reasonable price, your home may have other advantages that aren’t always taken into account. For example, one prospective buyer may love the way a river or backyard looks from your client’s house, and not any other property. Leverage such features to be patient for the right offer.
When Should A CMA Be Completed?
This is a question that property owners often ask. You can get a CMA done any time you want to assess your home’s current value, but it’s most commonly done during the following times:
- Before listing your property or holding an open house
- If you’re going to be putting your home on the rental market
- If you’re refinancing your house
- If you’re looking for the best time to sell a house
- To find out if your property has an issue or needs repairs
In most cases, a CMA is done when a homeowner has decided to sell their property. If that’s what you’ve decided, it’s always a good idea.
A CMA not only helps you understand where your home stands in comparison to others’, but it also reveals any issues with your home so you can fix them before marketing it.
As a homeowner, it’s wise to hire an agent to conduct the CMA. Your agent will review listings from the last six to 12 months and present their findings and recommendations to you.
If you’re doing for sale by owner (FSBO), you can still get a CMA conducted independently. Do an online search for real estate professionals experienced in assessing properties. Typical costs are anywhere from $300 to $1,200 for a proper CMA from someone who knows what they’re doing.
Is It Ever Too Late to Get A CMA?
It’s always wisest to get a CMA done before listing your client’s property on the market. If you’re only now discovering its importance, it’s best to do it before the home has been in the local market for more than a couple weeks.
Completing a CMA before the house has been on the market for several weeks is a preventative measure against financial losses for your client.
On the other side of the equation, it’s smart to complete another CMA after your client’s home has been in the current market longer than expected. Critical factors may have been missed, or perhaps they were noticed but under- or overestimated.
Analyzing The Path to A Successful Sale
Now that you’ve read this post, you won’t be in the dark when someone asks, “What is a comparative market analysis in real estate?” Whether it’s a coworker, client, or your boss, you’ll have a confident answer.
CMAs are an important step in the home selling process. Whether you’re a consumer leveraging opportunities from a FSBO perspective or an agent understanding how to best serve your clients, make sure you use them.Back to Top