Last Updated on June 20, 2023 by Bob Filipczak
A comparative market analysis is a bit like a Swiss Army knife – it’s a multifunctional tool that can help both buyers and sellers as they enter the real estate market. It helps buyers understand the pricing of homes, including factors that have nothing to do with the actual structure. For sellers, it’s vital for arriving at an appropriate listing price. Misjudging the value of a home can result in financial losses, which underscores the importance of a reliable CMA.
Real estate agents often offer comparative market analyses as a complimentary service, but they aren’t necessarily easy. They take a lot of work to put together. As either a buyer or seller, It’s essential to understand the complexity of even the simplest CMA. A good real estate agent will be able to walk you through a CMA on a house. That’s part of their “education” mission.
The process of determining a fair market value of a property intertwines science and intuition. While various figures and algorithms can assist in developing an accurate CMA report, a fair bit of educated estimation is also required. While it’s possible to use online tools to do your own comparative market analysis, the general consensus leans toward entrusting this task to seasoned real estate brokers. Errors, even as small as 2%, can mean a significant sum of money when dealing with properties worth hundreds of thousands of dollars.
It’s important to note that both sellers and buyers may request a CMA for the same property, ensuring a fair, market-based price is achieved.
Decoding the Comparative Market Analysis
When an agent hands you a CMA – and it can be a rather lengthy report – what are you getting? If it’s done right, you are getting detailed information that analyzes the facts of the subject property. But you are also getting some of the intuitive expertise of an experienced real estate agent. That combination of technical specs and gut-level instinct should give you a confident sense of the best sale price for a property.
At its core, the comparable market analysis examines similar homes in the vicinity of the home being sold, suggesting a listing price based on similar features. Here are some key factors:
- Age: The CMA considers homes that were built around the same time as the property in question.
- Location: The comparable properties should be within the same neighborhood, typically within a 2-mile radius.
- Square feet: Homes of similar square footage are incorporated into the detailed report.
- Room count: The analysis ideally includes properties with the same number of bedrooms and bathrooms.
- Type of home: A CMA compares similar property types, so it won’t compare a single-family home and a condo.
- Lot size: Homes with similar lot sizes are included in the analysis.
- Upgrades: Major renovations, such as kitchen upgrades or bathroom makeovers, can significantly impact a home’s estimated value.
- Special features: Unique elements, like a swimming pool or lake view, are also considered, although finding comparable properties may be more challenging.
The Art and Science of Comparative Market Analysis
Arriving at a perfect match for a property, especially within a limited radius, can be difficult. Despite accumulating similar properties and processing the data points, this approach might not entirely capture the property’s unique value.
A good CMA will include factors like an up-and-coming neighborhood or imminent infrastructural upgrades, such as improvements in a local school district, which might not yet be reflected in data-driven estimations. Additionally, they can incorporate data on properties under contract or pending sale, providing a more holistic picture of the market.
A CMA is more than a price tag; it’s an informed analysis blending data and local market intelligence. As a result, no two CMAs are identical, as they’re informed by the expertise and knowledge of the individual agent.
Understanding the Difference: CMA vs Appraisal
It’s crucial to understand that a CMA is different from a home appraisal. While both aim to ascertain a property’s value, an appraisal is a financial opinion intended to assure the lender of their investment’s security. The CMA, on the other hand, aims to answer two questions:
1) What’s the property’s worth?
2) What is the appropriate asking price for it under current market conditions?
Also, while a CMA is a free service, an evaluation from a licensed real estate appraiser typically costs between $300 and $500.
The Importance of Comparative Market Analysis in Today’s Housing Market
For long-term homeowners, understanding their home’s worth has never been more critical. With substantial equity built up in their homes, many are unaware of their property’s actual value, especially given the recent housing price increases. Right now the average household equity is at a record high of $320,000. Recent research shows that it’s gone up by an additional $60,000 in the past year.
Therefore, keeping CMAs updated and frequently reviewing them is essential. An insightful CMA might reveal equity windfalls that could motivate owners to consider selling.
For potential buyers, a good CMA will help them make a better, more competitive offer when they are bidding on a home (especially if they are in a bidding war).
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