An essential part of selling a home is working out what price you should set. It is also crucial for buyers to understand how much they should offer on a home they're interested in purchasing.
A competitive market analysis is the best way to decide what a home is worth. Also known as comparative market analysis, the CMA in real estate is the most common way to determine the value of a property.
Let's look at essential things to know about a CMA.
What is a CMA?
Customarily prepared by a real estate agent, the CMA is a report giving the home’s current value with information to back up this assessment.
The agent will look at what similar homes have sold for in the same neighborhood to show homebuyers if the property is worth the price tag the seller is putting on it.
It will also guide sellers in finding their ideal selling price. Sold properties make up the highest weighting in a comparative market analysis. However, real estate agents also use pending home sales and current listings for sale to pinpoint a correct listing price too.
When a home is priced correctly, it should go under agreement in an expected period of time like other similar properties.
How to Create a Competitive Market Analysis Report
Local knowledge
Creating a CMA in real estate isn't simply about comparing homes and doing calculations to find the right price. Knowing the neighborhood is also important.
If you expect to produce an accurate CMA, you should know the local area. Understanding what the local market is doing, and has done historically, leads to better results.
For example, what are the average days on the market for other similar comparable properties?
It also allows you to be aware of the promising areas and those at the other end of the market. Local knowledge helps you understand which is the best school district to be located in and know the amenities and other nearby features.
Check online
If the home is listed, have a good look at the listing before you visit. Find as much other information about the house as you can before meeting the seller.
You should be able to find out the year it was built, the lot size, construction type, and other details easily.
Visit the home
More detailed information for the comparative market analysis will be available when you visit in person. Once you're in person at the property, it will help assess the condition and finish of the property more accurately.
You could also look for any features that can increase the valuation. This might include things like a finished basement, the well-situated lot, better landscaping, and other things that might not have been included in the listing.
You also want to be looking for anything that could lower the home's value. Perhaps the roof doesn't look in the best condition, or the HVAC system seems old and needs replacement.
Find similar properties
You will need three or four homes that have sold recently in the same area. The MLS or property listings websites should give recently sold information on homes in the neighborhood. Even active listings or pending properties, and other types of listings can be used to help the analysis.
When choosing your comparable properties, there are three main things to remember; location, features, and market conditions when sold.
Location - Ideally, you are looking for comparables as close as possible to the home you are trying to assess the value of. They should be in the same neighborhood and school district or within a mile unless in a rural area.
Even homes within the same neighborhood can vary in value considerably, though. For instance, a house close to a busy road will be less valuable than one close to a quiet park.
Features - Homes used in the CMA should be as similar as possible to the property being valued. Some of the questions you might ask could include:
- Is it the same size?
- Does it have the same number of bedrooms and bathrooms?
- Has the same construction type been used?
While finding an exact match could be difficult, you want to try to get as close as possible.
Market conditions - The current conditions in the local market could be very different from possible comparable homes.
Ideally, you want to find homes that have sold in the last few months. Selling conditions could have changed significantly when looking at properties that sold over six months ago.
Being accurate with your comparative market analysis is vital. There are consumers who are counting on you for accuracy. You don't want the property to have a low real estate appraisal if you're representing either the seller or buyer.
Creating the CMA Report
The information you have found about the comparable homes can be entered into a template report. This is where you will need to consider the value of the differences between similar homes and the subject property.
A value will need to be given to the differences so that you can adjust the price of the comparables to match the subject property. Doing so should give you a reasonable expectation of having an accurate CMA report.
Far too many real estate agents look at the square footage and try to calculate an average cost per square foot. Using this method to value homes is a sure-fire way to be inaccurate with your pricing.
Price per square foot is just one measure of value. It does not account for many things, including the location and each home's unique amenities.
Final Thoughts
For a real estate agent, one of the most crucial parts of the job is creating an accurate CMA. It is not only a skill but an art. The best real estate agents consistently price homes accurately. For others, it is like the blind leading the blind.
It is vital to pick an agent who has a track record of success pricing properties as a consumer.
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