What Is a Comparative Market Analysis and Why Does It Matter?

The task of buying or selling a home can be daunting. One of the most critical tools leveraged in the real estate game to help streamline the process is known as the comparative market analysis, or the CMA (for short). While you may have heard your real estate agent use the term, what exactly is it, and why is it so important in real estate transactions?

This post breaks down everything you need to know about a comparative market analysis, from what it is to how it works and to how it can help you gain the upper hand in a heated real estate market.

What Is a CMA?

A CMA (Comparative Market Analysis) is a professional estimate of a home’s current market value. Real estate agents or brokers do it to help sellers figure out how much to ask for their home, and to help buyers determine how much is reasonable to offer.

A CMA is a comparison of the subject property (the property in question) to other similar properties in the same area. Such properties are typically known as comparables or comps. Agents use “comps” that are very recent sales, listings currently on the market, or listings that were on the market but did not sell, and they make adjustments for such things as size, location, condition, and features.

Although the CMA is an unofficial valuation (an appraisal is done by a licensed appraiser) it will give you a good impression of a property’s likely market value.

Why a CMA Is Valuable

Whether you are a purchaser or a vendor, a CMA provides vital direction. It ensures that:

• Sellers do not suggest a price and do not price themselves out of the market. Overpricing can result in a protracted listing, while underpricing leaves money on the table.

• Buyers make offers that compete, but don’t overspend, and are able to reasonably expect fair value for their investment.

• Both know what is selling right now, in that area.

How Real Estate Agents Do a CMA

A comparative market analysis is a combination of art and science. Here’s the process that real estate professionals use to create a useful CMA:

Evaluate the Subject Property

First thing you want to do in any CMA is assess the subject. Agents collect pertinent information such as:

• Who owns all this property (property size in square footage)

• Rooms and spaces at the property

• Lot size

• Age and condition

• Improvements (such as a kitchen remodel or a new roof)

• Attractive amenities (big deck, pool, high-efficiency systems)

Search for Comparables

After visiting the subject property, agents look for similar homes in the same area. The comps that best suit each of these criteria:

• Located nearby. Usually, in the same hood or a comparable one.

• Approximately the same size (sqft, room count, and Lot size).

• Recently sold. Preferably in the last three-six months, to give you the current market data.

• Comparable condition. For example, a newly overhauled house cannot be directly compared to one that requires major repairs.

Adjust for Differences

No two properties are exactly the same, so agents compensate for differences between the subject property and the comparables. For instance:

• If the property is a subject property that has more land than the compared property, additional value is added.

• A home that does not have nice appliances will have a lower price compared to a similar home that is fully equipped with appliances.

Analyze Market Trends

Agents also learn the current market state of the real estate industry, such as:

• Supply and demand. Are the buyers outnumbering the homes on the market, or is it the other way around?

• Seasonal trends. Specific seasons can affect property values (springs tend to be a hot season for property).

• Local economic conditions. A strong local job market can lead to rising home prices.

Present Findings

Finally, the results are formatted into a full CMA report. This report includes:

• Details of the Property subject to the development consent

• A comparable sales list with sale prices, listing prices, or listing contract prices

• This will be compared to comps and an adjustment made to reflect comps as needed.

• Price range (for sellers) or offer range (for buyers)

Advantages of a Comparative Market Analysis

If you’re not sure if it’s worth your time to get a CMA, here are some of the primary benefits it provides:

For Sellers

• Set a Competitive Price. A CMA helps determine a price that can bring buyers in and still net you the most profit.

• Minimize Time on the Market. Properly priced properties sell faster, keeping you from wasting valuable time and energy.

• Justify Your Asking Price. Not only does having similar properties help the price you set be more credible and defensible during negotiations, you can add all of those properties as a comparison to make the price seem more reasonable.

For Buyers

• Avoid Overpaying. A CMA prevents you from overspending on a property.

• Assist in Negotiations. Knowing what a property is worth will give you leverage when you are making an offer.

• Understand the Local Market. A CMA can help buyers identify trends in pricing in an individual neighborhood.

For Both

• Reduce Emotional Decisions. Negotiating the price can be an emotional context. A CMA will help ensure negotiations are anchored in data and facts.

How to Ensure an Accurate CMA

Although CMAs are valuable tools, the accuracy of a CMA is only as good as the agent and the data they are based. Here are a few tips to help you ensure your CMA provides a useful analysis.

• Partner with an Experienced Agent. Select a local agent who is knowledgeable about the area, reliable, and competent.

• Provide Accurate Details. If you’re a seller, enlighten your agent about your property’s upgrades and features.

• Ask Questions. Ask your agent what led them to their conclusions or why they used specific comparables.

• Stay Updated. Real estate markets change, so make sure your CMA reflects current trends.

Comparative Market Analysis vs. Appraisal

Battle of the CMA vs. Appraisal

A CMA and an appraisal are similar, but they are not the same thing. Here’s a quick comparison:

An appraisal is more or less a mandated value certification for lenders, whereas a CMA is a tactical price strategy tool.

Leverage the Strength of a CMA

Knowing what is a comparative market analysis and how it works can be the difference when you buy or sell a property. It provides you with insights and analysis of the data so that you can make more informed decisions and take better actions.

If you’re getting ready to buy or sell and you haven’t gotten your CMA, get in touch with a local real estate professional you can trust to help you through the process. When you have the right information and a good real estate professional at your side, the process of selling a home can be much easier and more profitable.