A Comparative Market Analysis (CMA) is an essential tool in real estate designed to help buyers and sellers understand a property’s current market value. In short, a CMA in real estate is a detailed report that compares a specific property to similar homes that have recently been sold, are currently on the market, or were recently listed but didn’t sell. The goal of a CMA is to provide a data-driven estimate of a property’s value to help buyers, sellers, and investors make informed decisions.
Here’s what you need to know about a CMA as a prospective real estate agent. We’ll discuss how you’ll use this report and key factors that a CMA considers.
Key Takeaways
- Purpose of a CMA: A Comparative Market Analysis (CMA) estimates a property’s market value by comparing it to similar homes that have sold, are listed, or were withdrawn.
- How Agents Use CMAs: Listing agents use CMAs to provide sellers with a realistic price range for their property, while buyer’s agents use them to help clients avoid overpaying.
- Key Factors in a CMA: Location, square footage, property age, number of bedrooms and bathrooms, upgrades, and the home’s condition are critical in determining a property’s price in a CMA.
- CMA vs. Appraisal: While both aim to estimate property value, a CMA is an informal estimate prepared by a real estate agent, while an appraisal is a formal valuation conducted by a licensed appraiser, typically required for securing a mortgage.
How is a CMA Used in Real Estate?
A CMA compares the prices of properties by analyzing homes that are similar in size, location, and features. This report is used in a variety of ways in real estate.
How listing agents use CMAs
Listing agents (or seller’s agents) use CMAs to give clients selling a property a realistic price range. Sellers can use this information to set a competitive price.
How buyer’s agents use CMAs
Buyer’s agents look at CMAs when advising clients how much to offer on a property. Buyers can use this information to avoid overpaying.
Key Factors in a CMA
A CMA takes into account various aspects of a property, including the following:
Location: Properties in the same neighborhood or school district are often more relevant when determining an appropriate price for a property.
Square footage: Homes of similar size offer more accurate comparisons.
Age of property: The age and condition of the home play a crucial role.
Number of bedrooms and bathrooms: These details are essential when comparing homes.
Upgrades and amenities: Renovations, pools, or modern kitchens can impact value.
Condition of the property: A well-maintained home with a newer roof and HVAC system will be priced higher than one that needs work and updates.
CMA vs. Appraisal: What’s the Difference?
While both a CMA and an appraisal aim to estimate a property’s value, there are differences in these two reports.
A real estate agent prepares a CMA, making it an informal estimate of the property’s market value. It gives sellers and buyers a preliminary idea of the property’s market value.
On the other hand, an appraisal is conducted by a licensed appraiser and is typically required by lenders to secure a buyer’s mortgage. An appraisal is a formal valuation used for financial purposes.
The main distinction is that a CMA determines the price of a home, while an appraisal determines its value. (The price refers to the amount you pay, whereas value reflects what the property is truly worth.)
Related Article: What is an Appraiser? What Does an Appraiser Do?
Why is a CMA Important?
For sellers, pricing a property correctly from the beginning can mean a quicker sale and potentially a higher profit.
A CMA ensures buyers are paying a fair price based on the current market, protecting them from overpaying. Offering an appropriate amount for a property may also affect the buyer’s financing. If the appraisal finds that the home is worth much less than the buyer’s offer, the buyer may need to come up with additional cash (or renegotiate) to close the deal.
How Do You Do a CMA for a Seller?
In real estate school, you’ll learn how to complete a CMA for sellers. Here’s a quick summary of how it works.
Step 1: Gather property information
Begin by collecting detailed information about the property, including the following:
- Property type (single-family, condo, etc.)
- Square footage
- Number of bedrooms and bathrooms
- Lot size
- Age of the home
- Features and upgrades (e.g., renovated kitchen, pool, finished basement)
- Condition of the property
Step 2: Research comparable properties
Next, research comparable properties (also called “comps”) in the same area that are similar in size, age, condition, and features. Look for the following types of properties:
- Recently sold properties: Typically within the last 3-6 months
- Active listings: Current homes on the market
- Expired or withdrawn listings: Homes that didn’t sell
- Pending listings: Properties under contract but not yet sold
Step 3: Analyze the comparable sales
Once you’ve found comparable homes, analyze the data surrounding the sale, including the following:
- Sale prices: The final selling price of recently sold homes
- Price per square foot: This provides a valuable metric for comparing homes of varying sizes
- Time on market: How long each property was listed before selling, offering insight into pricing accuracy
- Adjustments for differences: If the comparable homes have features or upgrades the seller’s home lacks (or vice versa), adjust the estimated price up or down accordingly
Step 4: Evaluate market conditions
Consider the local market conditions. Is it a buyer’s market (more homes than buyers) or a seller’s market (more buyers than homes)? Market trends can significantly impact pricing strategy.
Step 5: Create a price range
Based on the analysis, create a suggested price range for the seller’s home. The lower end of the range reflects a quicker sale, while the higher end might be more appropriate in a seller’s market or if the seller can wait longer for a buyer.
Once the price range is determined, present the information to the seller. Discuss the seller’s goals and timeline. Some may want to price their property aggressively for a fast sale, while others might prefer waiting for the best possible offer. Adjust your strategy based on their preferences.
By conducting a thorough CMA, you help the seller set a realistic and competitive listing price that aligns with market conditions, maximizing their chances of a successful sale.
You’ll learn all about CMAs, how they work, and how to complete one in your state-specific pre-licensing courses through Colibri Real Estate School. Colibri now offers audio real estate courses for faster learning and more flexibility.
