What Is a Comparative Market Analysis?
A Comparative Market Analysis (CMA) is a tool used primarily in the real estate industry to estimate the potential selling price of a property. By comparing a subject property with recently sold properties in the same area with similar characteristics, a CMA helps both sellers and buyers gauge the appropriate listing and offer prices respectively. This analysis is typically conducted by real estate agents and brokers to assist their clients, though it can also be done by individuals using online resources.
Key Takeaways
- A Comparative Market Analysis helps in determining a competitive yet fair price for a property by comparing it to similar properties in the area.
- CMAs are not only beneficial for sellers setting listing prices but also for buyers looking to make well-informed offers.
- Unlike formal appraisals, CMAs do not require a license and can be performed by real estate agents.
How Does a Comparative Market Analysis Work?
The essence of a CMA lies in its comparison approach. Properties used for comparison, known as “comps,” are selected based on closeness in location, similarity in size, features, condition, and recency of sale. Typically, the analysis will include:
- Detailed Description of Comps: Information on the number of rooms, layout, size, modifications, and more.
- Adjustment of Values: Financial adjustments made for any discrepancies between the subject property and the comps (e.g., a comp has an extra bathroom, or the subject property has a larger yard).
- Final Estimation: Calculating an average price per square foot from the adjusted values of comps to suggest a reasonable listing or offer price.
Success in conducting a CMA involves not just picking any sold house in the neighborhood but choosing homes that truly match the subject in terms of appeal and characteristics.
CMA versus Appraisal – Clearing the Confusion
While both CMAs and appraisals aim to determine a property’s marketability, their purposes diverge significantly:
- CMA: Typically informal and conducted by real estate professionals to determine a likely selling price.
- Appraisal: A formal, detailed report created by a licensed appraiser to determine a property’s value for lending purposes.
Hence, a CMA might be your go-to for a quick, ballpark figure, while an appraisal is mandatory for securing a mortgage.
DIY: Performing Your Own Comparative Market Analysis
Curious enough to try your hand at a CMA? Here’s how to get a basic sense of direction:
- Research Recent Sales: Focus on properties sold within the last 3-6 months.
- Match Property Features: The more closely the comps match the subject property, the better.
- Adjust Prices Accordingly: Make necessary price adjustments for any differences in features.
- Calculate an Average: Use your adjusted prices to find an average that will suggest a reasonable market price.
Executing a competent CMA demands a blend of detective skills and a keen eye for detail!
Related Terms
- Market Value: The most probable price a property would bring in a competitive and open market.
- Listing Price: The price at which a house is marketed and begins negotiations.
- Real Estate Appraisal: A valuation done by a licensed professional to determine the precise fair market value of a property.
Suggested Reading
- “Real Estate Market Analysis: Methods and Case Studies” by Deborah L. Brett
- “Investment Analysis for Real Estate Decisions” by Gaylon E. Greer and Phillip T. Kolbe
Clever analysis meets clever investing—don’t settle for less, dive into a Comparative Market Analysis and know your turf!
