What Is a Comparative Market Analysis (CMA) in Real Estate?
You might be surprised to learn that one in four sellers don't sell their home with the first real estate agent they contact and that a well-calculated comparative market analysis (CMA) can make the difference between a losing effort and a successful sale.
So what exactly is a CMA?
One of the first actions that real estate agents take when they're contacted by a prospective client is to pull a list of recent sales that are similar homes to the property being sold in the current market. These are known as comparable properties or 'comps' for short, and they provide buyers and sellers with an understanding of the fair market value for a home.
CMAs serve a few key roles: they help homeowners properly set their valuation and home price to increase the odds of receiving favorable bids, and they assist buyers in making a well-researched purchasing decision to ensure that they get the most "bang for their buck". This helps keep pricing competitive to optimize outcomes for everyone involved in the transaction.
Just as importantly, a CMA assures that real estate professionals "come with the facts" on crafting a competitive offer in order to highlight their knowledge, professionalism, and trustworthiness in the industry. A CMA using comparable homes helps the homeowner compare apples to apples.
Let's take a look at the details that go into creating highly marketable CMA reports that will impress your clients.
How to Conduct a Comparative Market Analysis?
Analyze the Listing
Beginning a CMA starts with checking out the neighborhood. This would include the name of the subdivision and any nearby amenities like swimming pools, recreational and shopping centers, the community walk score, and how safe and attractive the area is. It also includes learning about the school district and its rating, as well as potential community drawbacks like noise interruptions from transit systems.
Walking the neighborhood, checking sites like the Realtors Property Resource® (RPR), and talking to the sellers or the listing agent can help you gather valuable information about the listing.
In addition, you'll want to assemble meaningful data on the property. What's the home's style, such as townhouse, flat, two-story, or split-level? Is it a new build or a pre-owned property? Other key information includes how large it is in square feet, how many bedrooms and baths it has, its condition, its construction materials, special features, and the acreage. When you walk the neighborhood, you can check out the property's curb appeal as well.
Use an MLS to Find Comparable Properties in the Area
Your area's Multiple Listing Service (MLS) database has the most up-to-date 'sold' real estate data, which is why agents should use it to pull highly accurate data on comparable sales. This database is used by real estate agents, brokers, and registered REALTORS® throughout the country to list properties, and it updates in real-time the properties that are sold and in escrow. MLS pricing takes into account the most recent property or community renovations, safety ratings, and area amenities.
You can easily set a wide variety of useful parameters for the comps you're looking for in the MLS, such as square footage, number of bedrooms, the type of garage, the number of stories, and special features such as pools and decks. There are even preset filters in most MLS systems to assist you in getting started.
A quality CMA includes at least three, but ideally between five to ten similar properties in the area that have sold within the past three to six months. These should be analyzed to determine how they match up to the property being sold in terms of square footage, location, the number of bathrooms and bedrooms, the lot size, the age of the property, its layout, and its condition.
Financing options and recent remodeling projects by the homeowners also factor in, as do any new changes to the market. These might include new community parks, schools, or industries that have been approved after the comp properties were sold, or real estate restoration and high-end building projects that increase area property values.
It can be helpful to begin by pulling a few of these comps from Zillow, despite their "Zestimates" having a reputation for a lower degree of accuracy than the MLS. This is because many clients do some initial research on their own using Zillow before contacting an agent. Having this information at your fingertips helps you explain why this pricing may or may not match up with what the client's final CMA report reveals, which builds client confidence in your recommendations. Pulling the property's tax records is useful for the same reason.
Adjust the Value of Your Listing
Each comp you pull will have some differences from the property you're listing. For instance, the lot size, number of bedrooms and bathrooms, basement type, garage size, and property square footage may all vary. Your brokerage, an area contractor, and certain software tools can advise you of the price value in your market for each of these differences.
You'll begin the home's value adjustment by comparing the differences between each comp and your listing. For example, one comp may have an extra bedroom, valued at $3,000, which you would add to the sold price of that comp. Another comp may have one less bedroom than the listing, so you'd subtract $3,000 from that comp's sold price.
After this analysis is complete, add up each comp's adjustments to get its adjusted sales price. Adjustments should then be listed as an adjusted price per square foot, which can be found by dividing the comp's adjusted price by its total square footage.
Set a Listing Price
Once you've adjusted for differences, the comps with the fewest changes and most recent sold dates are generally given the greatest weight when setting the listing price of your property.
You can start with determining the average price of all the comps by adding together the average prices per square foot, then dividing this number by the total number of comps. Multiply this result by the square feet of your listing to find its base price.
Finally, adjust for any shortages or surpluses in market inventory that could drive the price up or down, as well as any considerations given to the most ideal comps.
Did You Know?
A CMA and an appraisal are not the same. Though they are two sides of the same coin, a comparative market analysis is a real estate agent's estimate of fair market value before a contract is signed. An appraisal, on the other hand, is the value of a home or property put together by a licensed appraiser after a contract is signed. CMAs are often referred to as informal appraisals, although they provide many of the same housing market indicators, and can be used by appraisers as part of their home value estimates.
What Factors to Include in a CMA
Here are some key specs to consider when doing a comparative analysis to help you provide the most well-honed, competitive CMA to your clients:
- Location: The same subdivision is ideal or within half a mile. If no comps are available in this price range, you can begin extending out the distance by half a mile and finding properties within the same zip code and school district.
- Square Footage: Try to find comps within 10% of the property size.
- Bedrooms and Bathrooms: Begin with the same number as the subject property.
- Sold Date: Within three months is ideal, and try not to exceed six months to ensure that market changes aren't skewing results.
- Built Date: Set your parameters within five years of the subject property.
- Property Type: Is the home a townhouse, ranch, split level, two-story, and does it have any unique or historical features, like an upper loft or the original woodwork? How many stories does it have?
- Property Condition: This would include information such as renovations, additions, any structural issues or upgrades that may be needed, and if it was ever a rental property. Also, is it new or pre-owned?
- Lot Size: Matching acreage is especially useful for rural properties with larger lots. If you can't find any similar acreage to the listing, take off the acreage to compare housing prices, then adjust for acreage value.
- Garage Type: If the listing has a garage, consider whether it's attached, detached, and the number of vehicles it holds in order to find similar comps.
- Construction Type: This would include materials such as brick, stucco, or vinyl exteriors, and interior finishes like wood, tile, or laminate flooring.
- Special Features: These could include a golf course setting, pool, deck, hot tub, recreation room, library, or media room.
Factors such as curb appeal and proximity to parks, schools, and recreational activities can help you further personalize the CMA. You'll typically include the address of the listed property, plus a side-by-side comparison of it to each comp you pulled using the specs listed above.
It is also recommended to show the price adjustments by feature that you did on each comp, and the adjusted price per square foot. Finally, provide the fair market list price of the property to be sold. Be prepared to explain how you arrived at this number!
It's good to gather all the MLS and Zillow data, alongside the tax records, prior to an in-person meeting so that your client can review the information ahead of time. An initial phone call or web chat is also helpful to find out any unique information about the property that may not yet be in the MLS, such as in-progress renovations or structural damage. You can then email the CMA report to your client and schedule a day and time to meet to go over the documents.
Comparative Market Analysis For Buying & Selling Agents
As a seller's agent, you'd use a CMA to help your client determine the asking price for their home or property. The goal is to avoid leaving any money on the table, while still pricing fairly, in order to get optimized offers as quickly as possible.
As a buyer's agent, you'd use a CMA to help your client determine the best offer or bid for a home or property. Here, you'll strive to leverage any extra value found in the comps that isn't found in the listed property to make an offer that saves your client money, while still remaining competitive enough to be accepted by the sellers.
Helpful Tools to Perform a Real Estate CMA
Using software tools can help you speed up and customize the CMA process. For instance, they can assist you with quickly figuring out the values to place on adjustments, without having to contact area contractors directly. Some software also has built-in presentation capabilities that can be used to help your clients better understand all the CMA data you're discussing. Here are our three top tools to boost your CMA reporting:
- iCMALive – This nationwide, cloud-based CMA tool offers lead capture, built-in and automated widgets and chat boxes, live MLS connection, and customized CMA reports that take into account current real estate market insights to provide a highly accurate fair market value for the subject property. Interactive reports can be integrated with your Customer Management System (CMS) and delivered online. Pricing starts at $10 a month, with a 15-day free trial.
- Cloud CMA - Just like iCMALive, Cloud CMA is a web-based program that collects leads, connects to most MLSes, and creates automated, interactive reports. It costs a little more at $45 per month, and for that additional price tag you can create professional listing presentations that are available in both print and digital formats, as well as buyer tours, property reports, and flyers. The software is compatible with iPads, smartphones, TVs, and tablets, and comes with a free trial.
- DashCMA – This unique software consolidates multiple-page CMAs into one dashboard view for events such as open houses and clients who are on the go. The software connects to most MLS and includes market trends, features, and 'flags' to help ensure your list price isn't too large or small based on comps that are outside your range criteria.