When it comes time to put an offer on a home a homebuyer is going to wrack the brain over what a house is worth. Often, we hear the term Comparative Market Analysis or CMA when a seller is trying to determine a price for their home.
But CMAs aren’t just for sellers, they can be very helpful to buyers as well.
A CMA in real estate is a report that is compiled by a real estate agent to estimate a home's value in the current real estate marketplace. It is usually prepared for home sellers to aid them in choosing the proper list price for their home.
But a savvy buyer’s agent will also provide a Comparative Market Analysis for a home buyer. It will indicate what other buyers are willing to pay for the home and ultimately what it may sell for. The CMA is a tool for a buyer to write a winning offer.
Determining a price for a home has a methodology. It is not a stab in the dark. A CMA uses past sales history to give an accurate estimate of what a home will sell for in the market. A comparable home often referred to as a comp is like the subject and has sold within the last 6 months.
Homes can be similar in many aspects but there are certain criteria that agents and appraisers know that affect value. An agent often mirrors what a home appraiser will do to determine value. At the end of the day, a home must appraise if you are financing with a home loan. While an appraisal and a CMA are slightly different in scope they will often give similar results.
Location- A comparable home should in the same or similar neighborhood setting and be within one mile of the subject property.
Size- The square footage of the comp should be no more than 20-25% of the subject property. You can compare a 3000 sq foot home to a 1500 square foot home even if it is next door.
Room bath and bedroom count- The room counts should also be similar to the subject property 7 room homes with 3 bedrooms and 1.5 baths should be compared to 6-7 room homes with 3 beds and no more than 2 full baths.
Style and Age- Homes that are compared to each other should be of the same style and vintage. Colonials should be compared to colonials and ranches should be compared to ranches in a similar age group.
Function and appeal- The function and appeal of the home should be similar of all the homes that are compared.
Amenities- Comparable homes should have similar amenities to the subject home. Central air, sprinkler systems, garage spaces, fireplaces, decks and patios, etc… should all be taken into account when choosing homes to compare to the one you are interested in buying.
Unfortunately, most homes are unique and it is near impossible to find identical homes. Real estate agents can adjust a sales price at their discretion to the original sale price.
A comparable home that is inferior will have adjustments adding to the base price while a superior home would have adjustments reducing the base sales price.
For example, a home with a new kitchen that is compared to a home with an original kitchen would have a positive adjustment made to it for having an original kitchen. Other adjustments could be made for location, room and bedroom counts, square footage, finished basements, etc…
While a CMA may include active listings, under agreement listings and even expired listings, the focus should d be on sold listings. A sold listing that has closed has established value.
Sold listings are the only listings that indicate value. Other statuses are useful in providing other information in a Comparative Market Analysis.
Active listings can show what a homes competition may be. They are actively being marketed with the hopes of securing an offer.
Under agreement homes can indicate where the market is headed. Homes that have an accepted offer but have not closed are under agreement.
Expired listings show homes that were not sold usually because they were overpriced for the market. Expired homes have been on the market and were never sold. The contract expired and the home was taken off the market.
While other factors go into structuring an offer, reviewing a comparable market analysis is a starting point to gain insight to what other buyers will be willing to pay for a home.
Homes that are marketed in your local Multiple Listing Service are going to sell for fair market value and homebuyers should expect to pay fair market value for a home listed in the MLS.
When buying a home it is important to work with an agent representing your interest. Only a buyer’s agent can provide a CMA, help you interpret the data and structure a winning offer.