In short, a comparative market analysis (CMA) is an estimate of a home's value based on recently sold, similar properties in the immediate area. Real estate agents use this to help sellers understand their home’s value, which is then used to determine a reasonable list price. This can also help buyers understand what a reasonable offer might be on a home they’re interested in purchasing.
A CMA is a powerful tool to use when selling or buying a home, and I’m going to go into detail on how to use one to your advantage.
If you don’t know who I am, my name is Tristan White and I’m a real estate agent in Seattle, Washington. I work with Coldwell Banker Bain, and am excited to kick off my career!
So, how does a CMA work, exactly? Well, the most important part of the puzzle is the subject property. Let’s say the subject property is a 2 bedroom, 1 bathroom condo in Kirkland. The real estate agent will take the address of that condo and take a look at all 2 bedroom 1 bathroom condos that are active, sold, or are currently pending within a 1-mile radius (give or take), over the last 3-6 months. They will then take a look at what those condos either sold for, or what price they’re currently listed at. This will give you a general idea of the value of that condo in that specific location.
Things a CMA will take into consideration:
Address of the subject property
Number of bedrooms and bathrooms
Square footage
Sales price of each comp (similar properties to the subject property)
Now we know how a CMA works, but let’s go into detail about how to make one:
1. Evaluate the neighborhood.
To set the right listing price—or ensure a home you're interested in is a good deal—the CMA should take into consideration the general quality of the neighborhood. Where are the more attractive blocks? How close are community amenities? How close are community nuisances? What are the HOA rules? How are the schools? Are there any issues with curb appeal?
2. Gather details about the subject property.
If a real estate agent or broker does the CMA, they will review the existing listing (if there is one) and make an in-person visit to gather information about the subject home. They'll take note of the home's size (particularly the livable space), age, style, construction, condition, layout, finishes, landscaping, and upgrades and updates.
3. Select comps.
Find three to five comparable homes in the area that have sold recently and that are as close to the subject home as possible. Ideally, the comps will be within one mile of the subject property and in the same school district. Focus on homes that are like the subject home in terms of square footage, lot size, bedrooms, bathrooms, and type of construction. Pay close attention to when the comparable property sold: The more recent, the better because real estate prices can fluctuate rapidly. If the home has a unique location—such as overlooking a golf course or the waterfront—the comps should have the same placement.
4. Adjust for differences.
The next step is to adjust for differences between the subject home and each comparable property. An experienced real estate agent or broker will be able to assign a dollar value to each of the differences and adjust the value of each comp accordingly. It may seem counter-intuitive, but if the comp has a feature that's inferior to the subject home, a positive adjustment is made to the value of the comp, and vice versa. The value of the target home is never adjusted.
5. Determine the sold price per square foot after adjustments.
After adjusting for differences, divide the adjusted price of each comp by its square footage to determine the sold price per square foot. Next, add together the sold price per square foot of all the comps, and divide by the number of comps to get the average. Finally, multiply this average by the square feet of the subject property to find its current market value.
Great! So we know how a CMA works, and we know how to make one, but how exactly do we use one to our advantage?
Well, a CMA is extremely helpful to a seller because it will give them a guideline as to what they should list their home for. A good real estate agent would use this information to list the home at a price that’s not too low where it’s a steal for a potential buyer, but also not too high that it won’t generate much traffic.
For buyers, this is a powerful tool when it comes to writing an offer on a home, because the CMA will give them an idea on whether the current list price is a good deal or not. Imagine being able to justify your offer because of a well-prepared CMA! The seller will know you’re definitely serious because of the hard work you and your real estate agent put into a well-thought-out offer.
The bottom line? A CMA is an extremely helpful tool to use whether you’re buying or selling a home. It’ll help you understand what you should list your home for if you’re selling, or what you should offer on a home if you’re buying.
If you’re in Washington and are looking to buy or sell a home, I’m currently preparing free CMA reports for anyone interested, just to give you an idea of what a home is worth. All you have to do is click the link here and plug in the address of the home you want me to create the report around. I’ll get the report back to you within a day, and then we can schedule a phone call to discuss everything on it.
I hope this information helps, and I hope you use a CMA to your advantage!
Until next time,
Tristan