If you’re a real estate agent, chances are you have done a Comparative Market Analysis (CMA for short) for a client or prospective client, or have at least heard of it.
If you are new to real estate, a CMA is a document prepared by an agent to help determine the selling price of a property, by comparing it to recently sold homes in the same area.
A CMA can be useful when looking at putting together offers for your buyers, to make sure the home they are interested in is a good deal or is overpriced. But a CMA is an essential tool to determine possible sales prices for your clients’ properties when listing them.
If you can master the CMA, it can greatly help your value accuracy and getting your clients their best possible sales price.
Evaluate the Subject
The first thing you need to do is check out your subject property so that you can see for yourself exactly what kind of condition it’s in and what positive features it brings to the table. If you can, do this in person so that you can see it with your own eyes and inspect anything you need to. Photos and information on a piece of paper can be misleading and could affect the accuracy of your CMA.
I encourage you to take photos and write notes that you can reference later. If you are unable to go in person, ask for as many details from the owner as you can, ask for photos if available, and don’t forget to check out the outside (and the rest of the street) on Google Street View!
You should also pull up any previous listings in MLS of the property, to determine if any improvements have been made, see what it sold for last, and check if there are any additional photos still attached to the listing.
Check Online Estimates
Websites like Zillow, HouseCanary, and Trulia all have their own online value estimates, but they’re usually just based on tax records and should not be assumed to be accurate. They can be off by as much as 30-40%! You should still look at them, though.
I guarantee that your clients have already looked their homes up on these websites, and consumers may not be aware of how inaccurate they are. You should be ready to address these online website estimates when you sit down with your clients to discuss your CMA. This is also a great way to show potential clients that you are knowledgeable, thorough, and prepared.
Different markets can vary, but the basics of putting together a CMA stays relatively the same. When looking for good comparables, there are a few guidelines to follow:
- It needs to have sold in the last six months.
- Homes within a few hundred square feet of the subject property. Appraisers are going to look at and adjust based on square footage, so you should, too.
- Try to find a home that has the same number of bedrooms and bathrooms as the subject. You can’t really compare a 6 bedroom home to a 2 bedroom home, even if the square footage is the same!
- Homes in the same neighborhood, if the home is within a neighborhood. If the subject isn’t in a neighborhood, or there aren’t any recently sold homes in the neighborhood, find homes that are at least within a mile or two radius.
- Look for properties with a similar lot size. A home with 10 acres isn’t a good comparable for a home with a half acre lot.
- Find homes that are built within 10-25 years as the subject home. A home built in 2012 is vastly different than a home built in 1942. It’s like comparing apples and oranges!
- Comparables should have similar features and amenities. For instance, you can’t do a waterfront home justice by comparing it to another home a few blocks away without water access.
Adjusting the Comparables
When adjusting the comparables, you’re going to have to subtract value from the sales price of the comparable for things the comparable has but the subject does not, and you’re going to have to add value for the things that the comparison does not have but the subject does. You’re going to have to study your comparables to determine a good value for those features.
For instance, the easy way to think about adding and subtracting for square feet is to find an average price per square foot. Look at each of your comparables. Using the sales price and the home’s square feet, figure out the price per square foot. Average that number for all of your comparables, and now you have a working value to use to adjust all of your comparables to determine a good price for your subject.
Preparing Your Final CMA
Now that you’ve done more math and research than you ever imagined, it’s time to put your Comparative Market Analysis together for your client! There are tons of software options out there that you can use as a template to get a professional look, or you can make your own. If your client seems to prefer tangible items (some people aren’t so fond of technology!), print it out and present it in a folder or binder.
If you’re working with someone more tech-savvy, or you prefer to save a few trees, put together a professional looking presentation, like in powerpoint, to present on a tablet or laptop.