Comparative Market Analysis: How To Do It
Self-Love Doesn’t Work with Real Estate, Compare Yourself to Others
Real estate lingo can be intimidating – “appraisals,” “comps,” and “CMAs.” Understanding the home selling process is essential to getting the most out of your property.
Comparative market analysis (CMA)
In real estate, a comparative market analysis is used to estimate the value of your home based on current market conditions.
A CMA considers a multitude of variables, such as location and square footage, in addition to comparing them to similar properties in your neighborhood.
In addition to providing you with a better sense of what a reasonable listing price for your property is, a CMA will also allow you to know what price you should propose if you are in the process of buying a home.
Comparative market analysis (CMAs) vs. appraisals
CMAs and home appraisals, another way to evaluate a home’s value, can seem similar at first. Here are the differences between them.
An appraisal, on the other hand, is usually a formal process that must be scheduled well ahead of time, whereas a CMA is a broader and more informal assessment of a home’s value. Some real estate agents may also offer free mock CMAs since they can be conducted remotely.
A CMA differs from an appraisal mainly because it caters to different clients.
Typically, home buyers need an appraisal to assess a property’s value, while home sellers are well-suited to CMAs as a tool for pricing. A CMA isn’t typically required during the lending process, but appraisals are.
CMA Process: How It Works
The CMA process is rarely seen by sellers who work with real estate experts. It’s not impossible to understand a CMA by yourself, even if you have some knowledge of the housing market in your area.
Let’s take a look at how these professionals put together an analysis, and examine the steps they take.
The first step in determining your home’s value is to search your area for comparable sales, or “comps.” Comps are recently sold homes that’ll ultimately assist you in estimating its value. A comp usually meets the following criteria:
- For a CMA, at least three comparables are chosen – the more comps used, the more accurate the estimate.
- In order to create a CMA, you should find a comp that has recently sold within three to six months of creating the CMA. An agent may conduct a CMA if there are no recently listed homes for sale in your area.
The first step in determining your home’s value is to search your area for comparable sales, or “comps.” Comps are recently sold homes that’ll ultimately assist you in estimating its value. A comp usually meets the following criteria:
- For a CMA, at least three comparables are chosen – the more comps used, the more accurate the estimate.
- In order to create a CMA, you should find a comp that has recently sold within three to six months of creating the CMA. An agent may conduct a CMA if there are no recently listed homes for sale in your area.
In the next step, your home needs to be compared to comparable sales to identify all the differences. In order to make your property as similar to the comps as possible, real estate experts usually work with a contractor to account for these differences.
Say, for example, your home has an addition that doesn’t exist on a comparable property. The value of your addition is typically estimated by a real estate agent in conjunction with a contractor. Adding a fireplace, remodeling a deck, or adding an addition will increase the sale price of the comparable property while removing undesirable features will decrease it.
All these adjustments must be reconciled afterwards. Each comp is weighed according to how similar it is to your home at this stage. Your price is then estimated based on this estimate.
CMA: How To Do It
CMAs aren’t for everyone, so you’re probably not the only one feeling intimidated. There are graphs, charts, and numbers that can be found online with a quick search. We break down everything you need to know about a CMA so you can conduct it yourself.
1. Identify your comparables
It is important to find comparable sales properties when preparing a comparative market analysis, as we discussed earlier.
Find homes that can be compared to your property using an online listing service of your choice. It is important to examine eight key components of a potential comp when comparing it to your home:
- Address
- The size of the lot
- Amount of square footage
- The property’s age and condition
- Bathrooms and bedrooms
- Features
- The date of sale
- Sale and financing terms
To make things easier, you should find homes that reflect your property as closely as possible – each of these components contributes to the value of your comparable sale.
In addition, you can use FSBO’s Pricing Scout tool to find comparable sales based on square footage and the number of rooms. Using this resource, you can get a pricing estimate that will help you with your CMA. It is easy to use and free.
2. Conduct research
Research your area’s market a bit to get a sense of its potential. For this purpose, you may want to consider examining local real estate statistics. The following are:
- The average price of homes sold in your area
- Home sales in your area recently
- Since you purchased your home, the value of homes in your area has increased
Understanding this information will help you identify reasonable offers and determine listing prices more accurately.
3. Make adjustments
In conducting a CMA, you should also consider special features that may add value to your home. Fireplaces, renovations, and additions fall under this category. Your home will certainly appreciate these additions even if you don’t get all your money back.
4. Do a self-check
You should cross-check your estimate with other local listings or FSBO Pricing Scout estimates before settling on a price. Your price should be reasonable, but you should still be happy with it.
CMA Accuracy: How Accurate Is It?
A CMA’s accuracy will also vary when conducted by a real estate professional or by you. Estimates will be more accurate if you use a large number of comps and know your area well.
CMA’s may not be as accurate as a professional appraisal, but you’ll still have a good idea of your home’s value.
CMA: Is It Necessary?
It’s easy to access and effective to find out what the housing market is like in your area with a CMA. First-time home sellers might feel unsure about them, but they’re a great first step.
Pricing Scout can help you find an estimate of your home’s value instantly if you would like some additional assistance. Don’t forget to conduct your own research – you know your house better than anyone!