How to Conduct a Comparative Market Analysis
Being aware of your home's worth is one of the most invaluable insights when putting a house on the market. An appraisal might automatically come to mind, but a comparative market analysis (CMA) can be really useful to analyze how a property stacks up in the current market. This post will dive into the purpose of a CMA, how it's conducted, and how it compares to appraisals. We'll also provide some tips for creating a successful CMA and why understanding this tool is so important in the real estate industry.
A comparative market analysis is a tool used to estimate the price of a home by comparing it to similar, recently sold properties in the immediate area. The goal is to calculate an estimated price for the property in question, also known as the subject property. Creating a CMA means generating a report that includes details about the subject property and the sales prices of comparable properties, or "comps."It may include adjusted prices for any differences between the subject property and the comps.
So, how exactly is a CMA conducted? Here are the steps involved in creating a CMA report:
Evaluation of the neighborhood and subject property: The first step in conducting a CMA is to assess the neighborhood and gather information about the subject property. This may include researching the amenities, schools, and overall desirability of the area. You'll also want to gather details about the subject property itself, such as its age, condition, style, and any unique features.
Selection and comparison of comparable properties: Next, you'll need to select comparable properties to include in your CMA report that are similar to the subject property in terms of size, age, condition, location, and other characteristics. It's best to choose comps that are most similar to the subject property and require the fewest adjustments. Aim for three to five comps that have recently sold within a one-mile radius of the subject property.
Adjustment for differences between subject property and comps: Once you've selected your comps, you'll need to adjust for any differences between them and the subject property. This may include adjustments for things like size, age, or condition. For example, if the subject property is larger than a comp, you may need to adjust the price of the comp upward to account for the difference in size.
Determination of final selling price per square foot: After adjusting for differences between the subject property and comps, you'll be able to get a good idea of the estimated price range for the subject property. Keep in mind that the final selling price per square foot may need slight tweaks depending on local housing market conditions.
While a CMA can be a handy tool in estimating a home's selling price, appraisals are generally considered to be more accurate. An appraisal is a more formal process conducted by a state-licensed, certified appraiser and establishes the value of a home rather than just its estimated selling price. An appraisal takes more time and money to complete, but may be necessary in certain situations such as mortgage financing or legal disputes.
So, when should you use a CMA versus an appraisal? A CMA is a quick and cost-effective way to estimate the selling price of a home and to get a sense of the local market. On the other hand, an appraisal is necessary if you're financing a mortgage, going through a divorce or legal dispute, or need an official value for the home for any other reason.
Look for comps that require the fewest adjustments, to make sure that they are the most similar to the subject property.
Keep an eye on local housing market conditions and make any necessary adjustments to the final selling price. If the market is hot and homes are selling quickly, you may need to adjust the price upward (and downward when the market is slower).
Utilize the various software tools available to create comprehensive and professional-looking CMAs. They can save you time and help you create a report that is easy to understand and present to clients.
Comparative market analyses are an effective means to estimate the selling price of a home, and you don't just have to leave it to real estate agents or brokers. We encourage all our homebuyers to follow the tips outlined above and produce a successful CMA to make informed decisions when buying or selling a home.
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