Comparative Market Analysis (CMA): A Guide

When you’re in the market for a new home or looking to sell your current one, figuring out how much to offer or ask can be a considerable challenge. How much a house is worth can seem fairly subjective, considering how many factors go into determining it. However, pricing property is a science. That’s why real estate agents conduct a comparative market analysis (CMA).

What Is A Comparative Market Analysis (CMA) In Real Estate?

A CMA is a tool real estate agents use to estimate the value of a specific property by evaluating similar ones that have recently sold in the same area. It can be challenging to reliably estimate the fair market value of a home because there are a significant number of factors that go into determining how much a specific property is worth.

When people who are buying a house or selling their home think of factors that impact the listing price, they typically consider location, square footage and the number of bedrooms and bathrooms. But the property’s age, condition, features, lot size and so on, as well as the conditions of the local and national housing markets, also affect the value of residential real estate.

CMA Vs. Appraisal

Although a comparative market analysis uses similar housing market indicators to compare and identify regional property values, it’s not considered an official home appraisal. While home appraisals are conducted by appraisers to create home valuations, CMAs are completed by licensed real estate professionals to estimate the fair market value.

Although the resulting value is an approximation that also incorporates the goals of the seller or buyer of the property, a CMA is a complex process that requires technical knowledge of the overall market and how various aspects of real estate impact how much a property is worth.

How Is A Comparative Market Analysis Prepared?

To conduct the analysis, real estate agents search for recently sold homes in the same area that are as similar to the subject property as possible.

These homes, which are known as comps – or comparable properties – are used to conduct a sales comparison approach to pricing. This approach relies on the premise that you can figure out a home’s worth by identifying how much it would cost to purchase a similar property of equal desirability.

The Rule Of Three

The first step for an agent preparing a CMA is to find three homes that have sold recently (within the past 6 months at most, but preferably 3 months). These three homes should be as similar and located as closely together as possible.

Once at least three comps are selected, each one is thoroughly examined to pinpoint how it differs from the home in question. 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.

Account For Market Conditions

Market conditions are a wild card with comparative market analysis and price setting in general. That’s why it’s best to use comparable homes that have sold as recently as possible. Also, a strong buyer’s or seller’s market might upend CMA values.

For example, a rapidly gentrifying neighborhood might not have strong comparable properties because housing prices can change dramatically within just a few months. If you’re looking for a home in a quickly appreciating neighborhood, remember that even though buyers and sellers may come to an agreement on price, in order to get financing, a home appraisal will be needed to determine if that price is justified.