What is a CMA (Comparative Market Analysis)?
A CMA or Comparative Market Analysis is one of the greatest tools a real estate broker has. A CMA is valuable in the buy as well as the sell side. It is an in depth look at the current market value of a particular property or home. A CMA can make sure you don’t over pay for your home or list your home too high or too low. People don’t understand the importance of properly pricing your home from the very start. If you have all the time in the world to sell your home by all means just take a shot in the dark or list your home at the price you want to get from it. If you are like 99% of the public though that doesn’t have 5 years to sell your home you may want a broker to do a CMA for you so you at least have an idea of what your home might bring.
A CMA is done in the same process as an appraiser would use. Please keep in mind a CMA is NOT AN APPRAISAL. Only a licensed appraiser can do an appraisal. A CMA starts with raw data from homes that were sold, under contract and listed in the area of the subject property with in a certain time frame, usually about 6 months unless it is a very unique property. The are called comps or comparables. I won’t go into too much detail about comps since I have written an entire article about comps. You can just click the previous link and it will explain the details of comp gathering. I will say that picking proper comps is the key to a good and accurate Comparative Market Analysis.
Understanding Comparative Market Analysis in Real Estate
What is a Comparative Market Analysis (CMA)?
A Comparative Market Analysis, commonly referred to as a CMA, is a vital tool in the real estate industry. It is an in-depth evaluation of a property’s worth in the current market, based on the recent sales data of similar properties. This analysis is used to help both buyers and sellers make informed decisions about the value of a specific property.
A CMA is not an appraisal, which can only be performed by a licensed appraiser. Instead, it is a comprehensive report prepared by a real estate broker to help a client determine the value of a home. The report analyzes three or more recently sold properties similar to the home in question, usually chosen based on their similarities in size, location, age, and quality.
The Importance of a CMA
A CMA is crucial for both buyers and sellers. For sellers, it ensures that their property is not overpriced or underpriced, which could lead to a loss of potential profit or a prolonged time on the market. For buyers, a CMA can prevent them from overpaying for a property.
A well-executed CMA can take several hours to complete, as it requires a thorough understanding of the local real estate market and careful analysis of comparable properties. Despite the time and effort required, many real estate brokers offer this service for free to their clients, recognizing its importance in facilitating a successful real estate transaction.
The Process of Conducting a CMA
The process of conducting a CMA begins with the collection of raw data from homes that have been sold, are under contract, or are listed in the area of the subject property within a certain timeframe, typically about six months. These are referred to as comparables or “comps”.
After the comps have been selected, adjustments are made to account for differences between the subject property and the comps. These adjustments can include factors such as land size, home size, number of bedrooms, size of the garage, square footage, age of the home, and many other parameters.
The adjustments are always made to the comps, never to the subject property, in order to make the comparables more like the subject property. Once all the data has been adjusted, the broker will then come up with an approximate range of the home’s value.
The Role of a Real Estate Broker in a CMA
A real estate broker plays a crucial role in conducting a CMA. They are responsible for gathering the necessary data, making the appropriate adjustments, and presenting the final analysis to the client. Their expertise and understanding of the local real estate market are essential in ensuring the accuracy of the CMA.
Choosing a real estate broker who is knowledgeable about the local market and experienced in conducting CMAs is crucial. They should be able to guide you through the process and explain the findings of the CMA in a clear and understandable manner.
Comparative Market Analysis
A Comparative Market Analysis is an essential tool in the real estate industry, providing valuable insights into the value of a property based on the current market and comparable properties. Whether you are a buyer or a seller, understanding the process and importance of a CMA can help you make informed decisions and ensure a successful real estate transaction.
The next step after picking the comps would be to adjust them slightly. Since we live in a unique area that all the properties are different and no two homes are the same, adjustments are very important to the CMA. This is also one of the most time consuming parts of the process. A good CMA could take many hours to complete if done correctly. I actually do this for FREE for all my clients. Yes I said I offer a FREE CMA to all my clients on any property they are going to sell or make an offer on. I’m not crazy i’m just a different kind of broker.
Next after all the data is adjusted, adjustments are always made to the comps never to the subject property. In other words you make the comparables more like the subject property. Adjust for land size, home size, number of beds, size of garage, square footage, age of home and many, many other parameters.
Your broker will then come up with an approximate range of your homes value that they will share with you. Where you fall on this range depends on your homes condition. Obviously if your home is in great condition and has all kinds of bells and whistles and upgrades, you will fall on the top of that range. If not and you have deferred maintenance or it is just weathered, you will be on the lower end.
So for all the FSBO people and buyers that “don’t need a real estate broker”, I salute you for taking this challenge to figure out how much money a property is worth all by yourself. I know many veteran real estate brokers that find a CMA to be one of the hardest parts of their job and they have been doing it for years.
So please call me anytime for that FREE CMA.
This is not real estate or legal advise. It’s just the views of a Realtor.