Breaking Down a Comparative Market Analysis (CMA)

The first step in buying or selling a house is judging whether a price is accurate for the listing.  No one is able to make an accurate judgment by simply looking at a home. While there are aspects of a house that will change its price – like needing a new roof or having a fully renovated kitchen and bathroom – there are many more factors to look at.  The comparative market analysis (CMA) helps do just that.

Using a Comparative Market Analysis

A comparative market analysis sounds like a daunting concept to anyone new to the real estate game.  However, there are terms that are more commonly used that almost any buyer and seller recognizes immediately.  Comparative market analysis is shorted to CMA. It is revolves around looking at comparable homes or “comps.”

Comparable homes need to be comparable in every way possible. To start, it should match the number of bedrooms and bathrooms.  Plus, the square footage should be similar. At the base level, if homes have these factors in common they should be listed and sold at a similar price.

However, comps do go beyond these base factors.  A very old home with two bedrooms, two bathrooms, and foundation and roof problems will not list at the same price as a two bedroom, two bathroom home that has just been built.  The upgrades, renovations, and location of the homes can play a factor in the pricing.

When thinking about comparable homes do not think about the neighbor’s house that sold last year.  Even though they may have gotten top dollar for their house it was sold in a completely different real estate market.  

The real estate market changes quickly.  Comparable homes can only be recent sales to find the best pricing.  Do not look further back than six months unless there are no homes that have sold.

Finally, always look at the price a home sold at.  Ignore the listing prices of the homes in the area.  While buyers hope that a seller has done their homework and listed their house accurately this is not always the case.  By using data from homes that have actually sold a buyer or seller can see how much homes are actually going for in the current market.

Working Alone

A seller or home buyer can find comparable homes on their own.  Any real estate listing website will have a feature that shows recently sold homes.  It is likely the listing pictures and information will be included to get an accurate idea of what condition the house was in when it sold.

There are even some sites that offer an estimator of the value of a home.  It is as simple as putting in an address of the desired house and the computer will search for comparable homes to use to find an estimated price.  Even though it is a fast way to get information any homeowner or buyer needs to double check this estimate.

As long as a seller or buyer is thinking about all of the right factors,  they should be able to judge if the price of a house is in the right range.  Almost every homeowner inflates the price of their home a little to leave some negotiation room so a little haggling is to be expected.  But by digging in and performing your CMA, you will find yourself in a strong position to understand the actual expected range.