What is a Comparative Market Analysis?
A Comparative Market Analysis (CMA) is an in-depth study of available Multiple Listing Service (MLS) listing data that compares the price tags of similar properties on the market and that have sold recently. The goal of a CMA is to establish a realistic price range reflecting the estimated value of your home. Your real estate agent will complete a CMA utilizing the (MLS) data base in order to assist you in arriving at a viable listing price.
Why Do a CMA?
The goal of you and your agent is to price your listing for what it's actually worth so you attract buyer interest from the outset. It's not advisable to over price your property and hope for unrealistic offers, nor do you want to bargain price your home, potentially creating a situation where buyers may try to negotiate an even lower price. A comprehensive CMA will assist you in determing what price range your home falls into based upon the incorporated listing data.
How Much Does it Cost?
Your real estate agent will provide you with a CMA report at no cost. The process of producing the report involves pulling data from the (MLS) consisting of homes currently for sale and that recently sold in the general area with similar characteristics to your property. In other words, you do not want to compare apples to oranges, however, in some cases finding similar homes in certain areas is not always possible, therefore you simply have to work with the data that's currently available. Your agent will strive to include comparable homes in the report that are similar in square footage, lot size, condition, and features. Since it's unlikely no one home will be identical to your own, the estimated value of the differences will need to be taken into consideration. For example, let's assume your home has no garage and a similar comparable property that recently sold has a two car garage, the estimated value of your home will be adjusted in order to reflect this difference. Keep in mind, this process is not an exact science and will entail some subjectivity when arriving at a listing price for your home.
The Right Comparables are Important
Utilizing incorrect comparables will reflect an erroneous price range likely resulting in an inaccurate listing price. Therefore, it's important to review the comparables contained within your CMA provided by your agent so you feel comfortable that realistic data was utilized. The following information is taken into consideration:
- Type & style of home: Condos are not comparable to houses, and a one story ranch is difficult to compare to a two story colonial. Your agent will strive to use similar style homes as comparables when possible.
- Neighborhood & school district: The CMA should include comparables in the same or similar neighborhood and school district as your home.
- Date of sale: The market changes daily, so more recent comparables are optimum. Usually your agent will not incorporate listing data more than a few months old in your CMA, however, if there's a lack of comparables it may require going back more than a few months.
- Location, location, location: Views, waterfront access, and even the type of neighborhood a home is in all factor into the home's value.
- Square footage: The comparables should be within 15 percent of your home's square footage if possible.
- Number of bedrooms and bathrooms: Larger homes with 3 or more bedrooms and 2 plus baths are generally more appealing to buyers and easier to find comparisons for, than smaller homes with one or two bedrooms and 1 bath.
- Age of home: Older homes can be somewhat more difficult to determine a value range for since many have older systems and are in need of some dregree of updating, while new construction and homes under 5 years old don't require value adjustments do to the cost of general and/or system updates. Of course, there's an exception to this value differential when an older home has been completely renovated and updated throughout.
- Condition of home: It's not advisable to compare a fixer-upper to a well-maintained or a recently remodeled home since there's such a wide differencial between values.
- Lot size and usability: Lot size is significant only when the difference is substantial. For example, a home with an acre of land should not be equally compared to one with a quarter of an acre even if the home itself is comparable.
CMA Basics to Remember
Keep in mind, some personal preference features that were an expensive addition to a property may not have the selling value that you might expect. For example, a buyer of a property with a nice in-ground pool may consider this feature quite valuable, while another buyer may simply consider the pool a work intensive and a real danger for his/her small children. This type of feature will not likely generate a higher property selling value needed to cover the full cost of the original installation.
Once you have the CMA in hand you now can see how your property compares to the pricing of similar properties on the market and that have sold recently, giving you a clear picture of what your competition will be when you list your home. You and your agent now have the resources in hand needed to arrive at a reasonable value range for your property.
Remember, pricing your home correctly from day one on the market is the most effective way to sell your property in a reasonable amount of time and at the highest price possible.