What Does A Seller Need To Know About A Compartive Market Analysis?

Real Estate Agent with EXIT Realty Beatrice Associates 9506757

One of the more critical pieces of selling your home is pricing it correctly and getting the price just right.  Of course, you don’t want to leave money on the table but pricing too high can leave your home stagnating on the market.

A home that sits on the market too long leaves home buyers leery about the home…. wondering why no one else wants it.  It is human nature not to want what others don’t want either.

Often an overpriced home will go unsold or has to be sold slightly below market to regain the buying public’s confidence in the home.

Ultimately, a real estate agent can make a suggestion, but it is the seller who chooses the asking price of a home.  A home seller will often just want to know what a home is worth.  But because of the subjectivity, it is important a seller understands what is behind the information used to arrive at a price.

So as a home seller what do you need to know about a comparative market analysis and what it means to you.

Pricing A Home Correctly Starts With Historical Data

While pricing a home can be finicky, there is a way to help determine the right asking price for your home.  It is a report generated by a real estate agent.

That report is called a Comparative Market Analysis or a CMA.

A CMA in real estate is a report estimating the price your home will most likely sell for by comparing your home (the subject property) to similar homes that have sold in the last few months in the surrounding area (comparable homes of comps).

So pricing your home correctly starts with data.  What does a seller need to know about a comparative market analysis.

A Good Listing Agent Will Provide A CMA

A quality, experienced listing agent will provide you with a CMA and explain how and why they did what they did to arrive at a price for your home.

Be wary of an agent that just gives you what you want to hear and doesn’t back it up with market data.  There is a method for getting the right price and there should be data to support a price for your home.  

Don’t be afraid to ask questions and spend time reviewing the CMA data with your listing agent. 

What Makes A Good Comp?

One area of confusion for many home sellers is what makes a good comp or comparable home.  There can be much subjectivity in choosing the comps for your CMA.  But there are some basics to keep in mind.  A good comparable home should be:

  • Sold in the recent past- no more than 6 months.   
  • In the same neighborhood or a similar neighborhood.
  • Of similar square footage no more or less than 20% of the subject property.
  • Similar in room count including the number of bedrooms and bathrooms.
  • Comparable homes should also be of:
    • similar age
    • similar style
    • similar condition
    • similar construction quality
    • have similar amenities. such as central air, decks, patios, sprinkler systems, etc…

Any homes outside those parameters will lead to a skewed report.   Often a seller will want their home to be worth more than it is and reach for a higher number by using homes that are good comps.

Common Errors Sellers Will Make When Choosing Comps

Comparing a neighbors home that sold 3 years ago.

Using a colonial as a comp for a slit level.

Thinking a 3500 sq foot home can be compared to a 1500 sq foot home.

Comparing a 5-year-old colonial to one built in the 50’s.

Square footage is calculated as above grade living space and does not include below grade or partially below grade living areas.

Exceptions Can Be Made

In a perfect world, it would be great if you can find 3 identical homes in the same neighborhood with the same yard and view.  But that rarely does it happen. 

Exceptions can be made at the real estate agent’s discretion that adjust a comparable home to make the comp come inline with the subject property.  For example, a very similar comp may have a one-car garage where yours doesn’t. 

In this instance, a slight price adjustment would be made for the one-car garage.  Or, a nearly identical home sold two doors down but it sold 9 months ago rather than fall inside the 6 month mark.

One Home Doesn’t Make A CMA

A CMA report is made up of several homes.  At a bare minimum 3 should be used, but an agent can certainly use more.  

One big mistake sellers make is pricing their home on one outlying home that is priced outside the other comps.  But of course as a seller you love a higher price.

That is why it is important to use at least 3 homes for your CMA.  A real estate agent will average the adjusted prices to give you the most likely selling price of your home.  You have to look at pricing your home holistically.

Fair Market Value Is A Range

Often a home seller will get stuck on one number and one number only as a price for their house.  And, that number is usually the highest that an agent may be able to justify.

Because each home and location is different getting the exact price is difficult. 

In the end, there will be a range of pricing to keep in mind.  It is usually within a 5-10% bracket. 

Don’t get stuck on one number, be flexible.  I am not saying give away your home but if you are with in $5000 of your asking price don’t lose an offer over $500 or $1000 dollars if it falls in the range of fair market value.

The Value of A Home Changes

Technically a value ascertained by an appraisal or a comparative market analysis is good for the day it is done.  Real estate markets go up and down and your home’s value will rise and fall with the market.

If you had an appraisal or a CMA done a year and a half ago, that value is probably not valid.  Practically speaking values don’t change much day to day.  But 3 months of a rapidly rising or falling markets can make a difference of 1-3%. 

For example one of my local markets Haverhill MA has appreciated almost 1% a month over the past year for a total of about 17%.  Back in the same time period between 2007 and 2009 the same market lost over 1% a month for a loss of 21%.

Get rid of any old values you have in your head and pay attention to today’s value.

Your Home Needs To Appraise

In many ways, a real estate agent uses many of the same principles to evaluate the value of your home that an appraiser uses.  The difference is an appraiser has strict HUD guidelines they must follow for the banks.  A real estate agent has more leeway than an appraiser.

In the end, most likely your buyer is financing with a lender and the house must appraise for the agreed-upon purchase price. 

If your home doesn’t appraise there is a high likeliness your deal will fall apart.

The Zillow Zestimate Is Not An A Comparative Analysis

Automated value models like the Zillow Zestimate that returns the value of your home by filling out a simple form does not replace a CMA.

While the Zestimate can be accurate it can also be wildly inaccurate.  The problem with AVM’s is they use a different set of criteria to evaluate a home’s price.  They are usually very heavily weighted by tax data and will go outside a neighborhood to find “comparable properties or use data that is older than what an agent or an appraiser will use.

Do not replace a CMA with the Zillow Zestimate.

The comparative market analysis is a crucial piece of data not only to determine a list price for your home but also to help you evaluate offers as they come in. 

It is important to carefully review the CMA data upfront so you have an understanding of what the value of your home is in the current marketplace. 

Once you listed and your home has been on the market without an offer it is important for you and your agent to relook at the data and possibly adjust based on sales that have occurred since you listed your home.

Comments (3)

Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Kevin - very good information.  I believe there needs to be a connection between a seller and real estate broker where a common goal and strategy agreement is in place that "makes things happen".  The comparative market analysis is an important part of the discussion.  

Mar 17, 2021 06:40 AM
Kevin Vitali

Absolutely.  The CMA is a critical piece often misunderstood by sellers.

Mar 17, 2021 07:58 AM
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

Our sellers need to know this. This is a piece of great information for them. Thanks for sharing!

Mar 17, 2021 07:10 AM
Kevin Vitali

thanks Joe.

Mar 17, 2021 07:59 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Kevin and great blog and so true what sellers need to know how we come up with the numbers for them.


Mar 17, 2021 07:24 AM
Kevin Vitali

Sellers need to understand how a price is arrived at.  The data is right there.

Mar 17, 2021 07:59 AM