An estimation of how much a house is valued at can be determined by completing a comparative market analysis (CMA) report.
This report takes into account the sale prices of similarly situated homes that are located in the same area. CMAs are advantageous for both real estate agents and their customers, aiding sellers in deciding on an acceptable list price and enabling purchasers to tender reasonable proposals. It is possible to carry out a Comparative Market Analysis by yourself, however, a specialist real estate agent can provide more precise figures without charging you.
The following is an overview of CMAs, ranging from how to obtain one for free to how real estate agents calculate home value, plus a visual example of what a CMA looks like and an easy-to-follow guide on how to create your own.
Who Should Get a Comparative Market Analysis
Home sellers: Comparative Market Analysis (CMAs) can support you in setting a competitive price for your property and give you a realistic idea of the money you’ll get from the sale. A detailed report provides useful local market information to help set your listing price and create a marketing strategy, including:
- Recent sale prices of similar or “comparable” homes in your neighborhood or subdivision.
- How long it takes for similar homes to sell after going live.
- What homes sell for compared to their asking prices.
- How much value a home’s upgrades or renovations add.
- A summary of the features of each sold home, including square footage, bedrooms and bathrooms, and acreage.
Understanding the expected market value of a residence can be beneficial in making a competitive offer, making sure that you do not put in too low (or too high) an offer, and abiding within your commercial plan. See your home’s estimated market value now!
Making wise investments in flip or rental properties requires accuracy, which is why a CMA report is an invaluable resource for investors. CMAs give you the means to recognize properties priced below their actual worth, lessen the chances of buying a bad asset, and enable you to bargain more effectively with vendors.
Homeowners can use CMAs to determine if the worth of their home is substantial enough to proceed with a refinancing. In order to refinance a home loan, creditors generally expect homeowners to have 20% ownership; a comparative market analysis (CMA) should be done to see if you meet the criteria.
Steps for Creating a Comparative Market Analysis
If you decide to do it, a comparative market analysis can be quite challenging, involving a lot of data and computations. Essentially, the entire procedure reduces to four straightforward steps that can be kept relatively uncomplicated.
Investigating and gathering information is the initial and most labor-intensive step. Then, you will assess the data to find out what the property’s market value is and generate a concise report to offer to your customers.
1. Research, Research, Research
For your CMA, you will need to look into three main things: the particular property, related properties, and the local real estate environment.
To get the most reliable comparison market report, you should obtain as much information regarding the property in question as possible. Use your local MLS (multiple listing service) to get property details like:
- Square footage
- Lot size
- Number of bedrooms and bathrooms
- Year built
- Updates (renovations, etc.)
- Notable features
- School district
It is a good practice to tour the property prior to formulating your CMA so that you can appraise its condition and any noteworthy characteristics precisely.
You can explore the area if you don’t know it well. Pay attention to the overall standard of the district, thinking about the variety of homes, closeness to open spaces and school boards, as well as standard facilities like swimming pools, outdoor decks, or verandas.
When you know the property and location well, it’s time to search for similar houses, also called “comparable properties.”
An ideal house to compare to should be in the same vicinity, sold in the last six months to a year, of a comparable size, and with the same amount of bedrooms and bathrooms. You have to discover the cost of every house, the value per square foot, and any price changes.
It may not be possible to get exact matches, but try to come up with 2 to 4 characteristics that are most alike. Explore recently sold homes by using software such as MLS, Zillow, Property Shark, and Redfin with options to search by price, specifications, and whereabouts.
Though active postings and ended postings rarely supply as much sales data, they’re still worth looking into.
In conclusion, the last thing that should be investigated is the regional property industry. Take some time to research the preferences of local buyers in terms of what type of home features they would like. Each local market is different, so it’s important to look into it.
Pay attention to other market movements such as building, educational facilities, internal decorations, and gardening.
2. Compare the Data
Now that you have the raw information, it’s time to examine the implications for your clients.
Put together all the collected information regarding your customer’s residence and other comparable households. If this is the first time you have made a CMA, you may recognize some conspicuous trends emerging immediately.
If you don’t inherently possess the skill of conducting research and sifting through information, you are in the same boat as many others. Real estate agents often have difficulty with this expertise, though that shouldn’t stop you from writing fabulous reports.
It is possible to take advantage of various kinds of online tools to quickly go through data or generate all the data needed with only a few clicks. If you want to make things easier, take a look at Cloud CMA, MoxiPresent, or Top Producer.
Utilize the facts and details you have gathered to develop a general suggestion about the worth of your customers’ residence and the optimal listing cost. Highlight the most important information to support your plan.
Once you are content with the decision you have come up with, you can start to collate the information into a document.
3. Input the Data into a CMA Report
If you show a large collection of mixed real estate information to your possible customers, they will be completely overwhelmed. Creating a report out of the raw data does not require a complex process, yet it should be arranged in an orderly manner.
When you are gathering data for a comparative market analysis, ensure that your attention is directed towards your customers rather than your real estate agency.
For instance, you might take delight in discovering all you did and create a worksheet containing all the sales facts about the existing market promotion with 15 columns–but does this information benefit the people who own homes?
It might be beneficial to include everything you discover if your customers have an interest in the real estate business. Nonetheless, numerous other homeowners require only essential facts about the market worth of their house right now.
There is not a single template for CMAs, so you can opt for either a basic spreadsheet, a document utilizing bullet points, or create a distinctive compilation. The most important things to remember are:
- Make it easy for your client to understand
- Support your pricing proposal with clear, accurate data
It can be said that real estate marketing is more closely related to an art form than it is to a science. What is most beneficial to you will be determined by the people you are trying to reach and the skills and limitations you possess. For more ideas, check out the CMA examples below.
4. Share the Data With Clients
After doing the necessary research, making comparisons, and putting together the data, you can now present the CMA to your client. Be ready to respond to their inquiries and support your conclusions with evidence.
Discussing your list advertising strategy at the same time as you present your CMA is a great idea. This is an alternate approach to demonstrating your talents to potential clients, and it helps you maintain contact with existing customers.
Inside the Comparative Market Analysis
It can be difficult to know what should go in a comparative market analysis because there isn’t a set way of doing it.
Some CMA’s can be quite basic, consisting of similar traits and a final assessment, while some may be intricate and comprise of a great deal of information.
In the end, the kind of CMA that is chosen should be based on its intention and who it is going to be presented to. If you are creating a comparison market examination for fresh real estate prospects, you may decide to include some supplementary promotional elements like your profile, achievements, preceding accomplishments, and complimentary feedback.
If this is your fifth time working as a real estate investor selling a house, the report should only include the most essential information.
As a general rule, every comparative market analysis should include at least the following information:
- Subject property information (square footage, lot size, bedrooms, bathrooms, year built, condition, most notable home features)
- Comparable property information
- Market value of recently sold comparable properties
How Accurate are CMAs?
CMAs are typically more accurate than estimators like Zillow, although they rely entirely on the most current sales information. Without any recent sales in your area, it is impossible to accurately judge the value of a house.
What matter is just as significant as who you pick to craft your CMA report. Things to take into account when selecting an agent to do your computation for you.
- Experience: A seasoned, full-time agent will likely create a more accurate CMA compared to a new or part-time agent, as they are more committed to their profession and have years of experience.
- Local knowledge: A local realtor will know the best comparables to choose, which sales to disregard, and how to properly adjust home values.
- Attention to detail: Agents who fact-check MLS information against a property’s tax records get the most accurate source of information for square footage, bedrooms, and bathrooms.
CMAs vs. Home Value Estimators
Various websites provide free online home value estimates. These websites can help you begin the process of determining the value of your home, however, you must seek the help of a professional real estate agent in order to set the exchange rate for your residence.
Two of the most well-known home valuation websites are Redfin and Zillow. Redfin has an accuracy rate of 6.71% when calculating the worth of an off-market property, while Zillow has a 6.9% error rate on similar properties.
This means that a residence with a real value of $500,000 could have discrepancies of up to $33,550 on Redfin or $34,500 on Zillow. CMA’s tend to be more precise than online house worth calculators for several grounds.
- Human vs. algorithm: CMAs are completed by a licensed professional who hand-picks the most relevant comparable sales, while sites like Zillow use an algorithm to pull comps automatically.
- Renovations considered: Online home sites can’t see inside your home, so they probably won’t know if you’ve renovated your kitchen or bathrooms, or made other value-enhancing improvements. An agent can give you credit for home renovations and upgrades.
- Fact-checking tax records: Realtors can pull information from a home’s tax records to ensure that the correct information is used in the CMA report. Online sites sometimes pull the wrong or outdated information from online listings or the MLS.
If you want only a rough estimate of the value of your house, it is suggested that you compare estimations from several online home appraisal sites.
CMAs for Sellers
If you’re considering selling your house and want to know what it might garner in the marketplace, you can receive a complimentary CMA from a real estate representative in your region. You are under no pressure, and we can provide you access to some of the best real estate agents local to you who can assist.
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You may attempt to create your own Comparative Market Analysis, although it will likely not be as precise as a professional realtor’s version. Nonetheless, this may be a decent jumping off point.
CMAs for Buyers
If you’re prepared to purchase a house, it is recommended to get your agent to do a Comparative Market Analysis. Your real estate agent is expected to give you a reasonable estimation of the price of your house based on recent house sales in the area. Real estate agents can provide information on how much similar homes went for, the amount of time it took for them to be sold, and whether or not any buyer concessions were paid, such as covering closing costs.
CMAs for Investors
CMAs are helpful instruments for buyers to discover and assess real estate. Investors may use a comparative market analysis to identify if a residence is valued below market cost after taking all relevant repair costs into account for the purpose of either renting out or selling off the property. CMAs can help investors negotiate with sellers, too.
A home that is not as up-to-date as the others in its area and needing some work should be valued at a lower amount. Demonstrating to the seller why you have chosen your offer amount may make it easier to negotiate the price.
CMAs for Refinancers
CMAs can help to find out the worth of your residence with the goal of calculating a home equity percentage (usually, you must have no less than 20% of home equity to qualify for a refinance). Realtors might not provide a free CMA report if you aren’t planning to buy or sell anytime soon, so you have three other options:
- Order an appraisal: A home valuation from a licensed professional who follows strict guidelines established by the Uniform Standards of Professional Appraisal Practice (USPAP). Appraisals are expensive, and your lender may require another one during the refinance process.
- Order a broker price opinion (BPO): Like a CMA report, a BPO estimates your home’s value based on its condition and the recent sale prices of similar homes located nearby. But unlike a CMA report, you might have to pay for a BPO ($150-$250).
- Complete your own CMA: The DIY route is free, but requires some legwork. You’ll need to run the numbers yourself to get an estimate of your home’s fair market value, to see whether or not it’s worth pursuing a refinance.