It’s a challenge figuring out how much a house is worth when a potential client asks an estate agent to evaluate their home. Many factors determine it, and at the end of the day, it almost seems subjective.
But, pricing property is a science and is best determined through a real estate comparative market analysis (CMA).
Quick Links:
- What Is a Comparative Market Analysis (CMA)?
- How to Do a Real Estate Comparative Market Analysis
- What’s the difference between a CMA and Appraisals?
- When to Use a Real Estate CMA
- How to do a Comparative Market Analysis (VIDEO)
- Concluding Remarks
What Is a Comparative Market Analysis (CMA)?
A comparative market analysis is a tool real estate agents use to estimate a property’s value.
A home comparative market analysis is usually conducted by evaluating similar houses sold within the area.
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When preparing a real estate market analysis, factors that impact the price typically include the square footage, location, and number of bedrooms and bathrooms.
But, more importantly, it depends on the property’s condition, age, features, and market conditions, among other things.
Real estate CMA reports can be used to make competitive real estate market analyses that help sellers to set listing prices that influence buyers to make competitive offers.
How to Do a Real Estate Comparative Market Analysis
When learning how to create a CMA report, it’s important to remember that it is not solely for the agent, and it’s meant to help clients understand the market and make the right decisions for their property.
In addition, CMAs also help to nurture and convert potential leads that result in more listings.
1. Determine Which Resources to Use For Research
An agent must provide clear evidence about their home’s valuation to gain a potential client’s trust.
To do this, the estate agent needs to use the correct tools to gather and compile data that make sense to potential clients.
Some great options include AVM, Cloud CMA, Zillow, Local MLS, HouseCanary, and Google Street View.
2. Gather and Organize Property Data on a Spreadsheet
If the agent used many tools to gather data, the information would likely be jumbled on multiple documents and platforms.
The property data and calculations should be transferred into an organized document or spreadsheet to make the information easier for the client to understand.
3. Record All Data About the Property
It’s essential to gain the most up-to-date information about the subject property.
The best way to do this is by visiting the property in person and speaking with the homeowner.
Record all information about the property, including the number of bedrooms and bathrooms, age and type of property, square footage, and parking.
All hidden issues and features affecting the sales price should also be recorded.
In addition, ask the homeowners about dates of past renovations, taxes, average utility prices, and homeowners association (HOA) fees.
Other factors to consider while touring a property include:
- The condition of the home.
- Any additions and upgrades.
- Necessary upgrades.
- Aspects of the exterior and landscaping that either increase or decrease their value.
- Any amenities that add value to the property.
4. Compile Comparable Data and Properties
Now it’s time to find a collection of similar properties to compare, evaluate, and compile the real estate CMA. Comparable properties should be similar in these ways:
- Location and neighborhood
- Age of property
- Listing age
- Square footage
- Exterior and landscaping
- Condition of property
- Building type
- Layout
- Bedrooms
- Bathrooms
- Lot size
- Amenities
- Recent renovations or updates
5. Calculate an Estimated Price Using Comparable Listings
After collecting five to seven comparable properties, the next step is calculating each home’s price per square foot.
Agents typically use simple equations to calculate the average price per square foot for each comparable property to calculate an estimated cost for the subject property.
To determine the average cost per square foot of each comparable listing, the agent should divide the square feet of each house by their respective sales prices.
Then, to find the average price per square foot, add up each comparable property’s price per square foot and divide this by the total number of comparables.
Lastly, multiply the subject listing’s square footage by the average price per square foot of comparable properties to determine the subject property’s approximate value.
6. Prepare Final CMA for the Potential Client
Now it’s time to finalize the data by creating a CMA package. A basic spreadsheet with property details might not always make sense to clients, so it’s essential to design a CMA report that includes key takeaways and descriptions.
It should also highlight the critical information and be put into a scannable format that won’t confuse the seller.
7. Schedule an Appointment to Review the CMA
Meeting potential clients is a great way to stand out to new leads, and it also allows the agent to be top of mind if the client sees many agents. Sending the CMA report over email won’t make the agent memorable.
The market analysis might be complex for the homeowner to understand, so having an agent walk them through it is a great way to convert them into clients and build a long-term relationships.
What’s the difference between a CMA and Appraisals?
There are two ways to find the value of one’s property: a comparative market analysis and a home appraisal. While they may share similarities, there are critical differences in how these two approaches arrive at a listing price for a property.
A CMA is a property valuation carried out by real estate agents to estimate the value of a property. CMAs provide a range of value that helps sellers set a listing price for their properties.
A CMA will compare a home to similar properties within the same area that has either been sold or are currently on the market in the past three to six months.
The main difference between an appraisal and a CMA is that a licensed appraiser carries out an appraisal on behalf of the bank. The bank usually orders a home’s appraisal when a buyer applies for a loan to purchase the property.
An appraiser may use similar payment methods to an estate agent but have no interest in selling a home. The appraiser visits the property to ensure that the property has a fair market value and that the bank is not giving out more money than the property is worth.
When to Use a Real Estate CMA
CMAs are primarily used to evaluate a property’s value before it is on the market.
If an agent has been hired as a listing agent, they must create a free, comparative market analysis report to help them determine the appropriate listing price for their property.
Aside from sellers, a real estate CMA can also be created for:
- FSBO (For sale by owner) home sellers. A CMA will show FSBO homeowners that they will make more money through an estate agent than on their own.
- Landlords. Real estate investors want to know the value of their rental properties before they list them for sale.
- Homebuyers. Knowing the values of similar properties in the area helps buyers determine if a home is a good deal and allows them to submit a firm offer.
- Commercial properties. Just as CMA reports are essential for residential properties, they are necessary for retail buyers and sellers to understand the value of similar properties.
How to do a Comparative Market Analysis (Even if you’re a NEW Real Estate Agent)
Video Credit: Brandon Mulrenin
Concluding Remarks
A comparative market analysis (CMA) is done right when the estate agent uses the necessary tools, finds similar properties, gathers data, and compiles it into a clear and concise CMA report.
With a good marketing strategy, listing leads will convert to new clients.
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