By Bill Gassett
When buying or selling a home, having a fair and accurate current market value is essential. As a homebuyer, you don't want to overpay for a property, and as a seller, you don't want to overprice.
When making a home purchase, it is essential to know what you are getting into. You want to ensure the home is the right fit for your needs and budget. One way to accomplish this is to have a comparative market analysis performed. The same can be said for a seller planning on listing their home for sale.
Let's look at everything you need to know about how to do a comparative market analysis.
What is a Comparative Market Analysis (CMA)?
If you've never bought or sold a house before, you may ask your real estate agent, "what is a comparative market analysis"? Asking questions about unfamiliar terms is essential.
A CMA is a tool that real estate professionals use to determine the market value of a property. They compare it to similar properties that have recently sold, are pending sale and are listed for sale.
The CMA is a compilation of data that agents use to determine the price of new homes for sale. It’s also a tool that buyers’ agents can use when advising their clients on making competitive offers.
Creating a CMA isn't straightforward when you've never done it before. Pricing a property is an art and a skill. Sometimes real estate agents do not master creating an accurate CMA until they've been in the business for years.
What Are The Steps For Creating a Comparative Market Analysis?
Let's take a deep dive into the necessary steps for providing an accurate CMA. If you are a new real estate agent, the information will be a blueprint for doing an excellent job for your clients, whether a seller or buyers.
Visit The Subject Property
The first step in creating an accurate market evaluation is visiting the property. The best real estate agents will walk through the home room by room and take a set of precise notes. Your property notes should include the features that stand out.
For example, when walking through the kitchen, what type of cabinets are there? Are they Cherry or white cabinets? Are there granite or quartz countertops? How about stainless steel appliances? Is there anything about the appliances that stand out, such as gas cooking or a built-in refrigerator? Is there a large eating area? What materials are on the floors? Is there anything else worth noting in your checklist? These are the kinds of notes that should be taken for each room in the house.
You'll want to remember specific features of any home that stand out and add value. There will be a whole subset of additional data that will be crucial, such as the type of heating and cooling, the siding type and the roofing composition.
What is the lot like? Does it have an excellent usable yard? Are there any outstanding landscaping features such as brick walkways, patios or decks?
Not only will all the information you have gathered be used to create a comparative market analysis but for creating your marketing.
The seller is also likely to be an excellent source of information. It will be vital to ask them about the ages of major systems and any improvements they have made. These items are likely to impact the home's market value significantly.
Get The Available Public Data on The Property
Most real estate agents will gather the data for the subject property by looking it up in the local multiple listing service (MLS). There will be a "field card" that showcases essential info about the home, such as the square footage, lot size, age, room count, bedroom count, bathroom count, garage size, etc.
The field card will likely contain information on the history of the property as well, including previous sales and their respective prices.
Much of the home's data will be compared to other similar properties.
Gather Recently Sold Properties
One of the essential aspects of creating a CMA is to pick accurate, comparable sales or comps. These comps should be as close as possible to the subject property.
Aspects such as location, size, age, condition and amenities will become critical variables in an accurate comparative market analysis. The collected data of the subject will be used to compare to at least three other similar sold properties.
The comparable sales should have taken place close to the property and be at least within the last six months. Preferably the sold homes should have taken place in the previous three months. More recent sales data will provide a more accurate CMA.
One of the most challenging skills is providing adjustments in value from one property to another. For example, if the comparable sales all have beautifully updated kitchens and baths and the subject does not, how will that influence its value. The skills and experience of the real estate agent stand out here.
Gather Pending and Current Listings
In creating your CMA, you'll also gather the current listings for sale most similar to the property and homes that are pending. These data points are not as valuable as a sold property. A sold comp tells you what the market was willing to bear.
On the other hand, a current listing is nothing more than what a homeowner would love to sell their property for. At a moment's notice, the price can change. You never want to hang your hat on what a home seller thinks their home is worth.
Pending sales can be helpful data points because they will become more recent sales. The only downside is real estate agents will not know the sale price until the property closes.
Active listings with low days on the market are better for evaluating value. If a property has been on the market for a long time, the market is saying it's not worth the listing price. Agents will have to take that into account when evaluating the subject property.
One Last Check Of The Properties Surroundings
Is there something that will be built near the property that could influence the market value? Some items could impact the property either positively or negatively. For example, a new Starbucks built down the street might help property value.
Conversely, if a major road is being built, that will create more traffic that might not be beneficial.
Evaluate The Current Real Estate Market Environment
Another crucial part of creating an accurate CMA is knowing the current real estate trends. Is it a seller's market with low inventory and many bidding wars, or is it a buyer's market characterized by lots of homes for sale?
Use All The Data and Create a Final CMA
The final part of creating a comparative market analysis will be putting it all together in an easy-to-understand format for the seller. The best CMAs have color pictures of comparable sales and detailed descriptions.
Keep in mind that you're presenting your data to a layperson that doesn't know real estate values as you do. If they can't understand what you're showing, they will unlikely trust what you have to say.
Your final CMA report should clearly state a suggested list price and a probable sale price. Many real estate agents provide a list price but don't go the extra step of delivering what the sales price will likely be. Don't make a seller guess. Put your opinion of value on a summary sheet that can be referred back to.
If the seller wants to list their home for a higher price, you may need to refer back to it at some point. Sellers are notorious for thinking their home is worth more than the neighbors. You might need to use your skills again to get an appropriate price reduction.
The Final Benefit of a CMA
A comparative market analysis can be a powerful tool for making informed decisions when done right. When buying a home, a CMA can help you pay the right price. It can ensure your list price is in an appropriate ballpark of current market value when selling.
Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 33 years. He has been one of the top RE/MAX REALTORS® in New England for the past decade. Gassett works for RE/MAX Executive Realty in Hopkinton, Massachusetts. In 2018, he was the No. 1 RE/MAX real estate agent in Massachusetts.