If you've been working on selling your house or buying one, you might have heard about comparative market analysis. Since real estate terms might seem confusing sometimes, it would be good to understand what this is, as you can benefit quite a lot from it.
What is comparative market analysis?
A comparative market analysis, or CMA, is an evaluation of similar homes in the same neighborhood. Similar homes are recently sold homes in the area, and we call them comparables. CMA is not to be confused with an appraisal. While a licensed appraiser performs appraisal, real estate agents provide a comparative market analysis to property sellers and buyers.
If you're moving with the help of a moving company, you'll compare the prices of several reliable companies before you make your choice. And then, you'll go to verifiedmovers.com and book your move. In this way, it's similar to CMA. However, with CMA, similar homes' prices are compared to find a reasonable price for a particular house.
Then, the seller will use this value to determine the price of their home. A buyer, on the other hand, can use this value to know if the price of the listed home is reasonable or not. Keep in mind that CMA should consider only the final sales prices of homes to be accurate.
After you choose the neighborhood, take a look at the comparables.
Reasons to ask real estate agents for CMAs
You need to find an agent who knows the area well when you decide to relocate to other parts of the state. As most real estate agents will give you CMA for free, you can use it to your advantage and look at it as one of the criteria for choosing an agent. Instead of interviewing many of them, their CMA will give you information on how well a particular agent knows the area. After agents email you a CMA, and you realize that they're familiar with the neighborhood of your interest, you can have a conversation with some of them and finally hire one.
While there might be questions that real estate agents won't answer, they will address your queries regarding the price of comparables. However, what you can't know immediately is the CMA's accuracy. A couple of agents can come up with very different valuations. If you're selling the house, you will like getting the highest value, but this doesn't mean that it's a number you should trust. Knowing the variables that affect the property price can help you decide which CMA you can trust.
You can hire a real estate agent based on the accuracy of the CMA.
The first thing you should do is choose the area of your interest. Keep in mind that the smaller the area, the more accurate the evaluation will be. The best case would be to have a couple of homes in the same subdivision, where some of the homes have been sold recently. However, as you know, this is not possible in most cases. As in life, examples are rarely this perfect.
The goal is to locate comps in the same neighborhood or the general area. While buyers should research the neighborhood they like, sellers should focus on their own neighborhood. After that, both should define the smallest possible area they can find information for on listings within the past year. If this is not possible, they should try to find similar houses in similar subdivisions in other parts of the town.
When the property was sold
When doing comparative market analysis, it's necessary to look at properties sold in a given time frame. Sometimes, looking at three or more houses sold in the area within the past year might be enough to get an accurate value representation. However, in fast-moving markets, agents need to look at recent sales to do the CMA accurately. In this case, sales that are more than a couple of months old cannot be used as good comps. The more recent the sale, the less likely it is that the market has changed enough to make the prices of sold properties irrelevant.
The next thing to look at is the characteristics of the four comps. Here, we focus on easily comparable features, quantitative features, like the square footage, the number of baths and bedrooms, the lot size, and other similar characteristics. The goal is that the comps are as similar as possible, as it makes the evaluation easier. Unfortunately, this is very rare in large subdivisions, so in most cases, it's not possible to compare these things exactly.
Perfect examples are rare.
Let's say you have four houses built in the same year, with the same number of bathrooms and bedrooms. However, one house has half the square footage of the other three homes. For that reason, it might not be relevant in our evaluation. Additional features, such as a parking garage or a security system, also affect the price. These features might be significant to buyers and impact their decision-making process when buying the property. For this reason, even if the houses have the same structure and square footage, they might still be quite different regarding the features or renovations. Consequently, they can have a different final price.
After you evaluate all of the details related to the houses sold within the right time frame, you can go back to the homes available for sale in the area of your interest and compare them with the comparables. Keep in mind the additional features and renovations when deciding if the price of the desired property is too high or too low.
Use CMA to your advantage
There's no way to perfect your home purchase if you don't know what comparative market analysis is and how to use it. The more comps used for CMA, the quality of it will be better. An accurate CMA will give you the necessary information to help you average out the prices and get a sense of homes' reasonable value.