“Appraisals,” “comps,” “CMAs” – keeping up with the latest real estate lingo can seem intimidating. But if you’re interested in the home selling process, you should understand what a comparative market analysis, or a CMA, is.
What’s A CMA?
By definition, a comparative market analysis is a tool used in real estate to estimate your home’s value based on current trends in the housing market.
In other words, while it’s typical to first consider location and square footage as affecting your home’s value, CMAs look at numerous different elements and compare them with similar properties in your area.
A CMA will give you a better sense of what a fair listing price for your property is or, if you’re also in the homebuying process, what price to propose as a competitive offer.
What Isn’t A CMA: CMAs vs. Appraisals
The distinctions between a CMA and an official home appraisal – another method of evaluating your home’s worth – can seem blurry. So, let’s break down what these differences are.
To put it simply, a CMA is a broader and more informal assessment of a home’s value while an official home appraisal is more formal and typically must be scheduled far in advance. Additionally, because CMAs can be conducted remotely, some real estate agents may mock one up for free.
However, the primary difference between a CMA and an appraisal is which clients these indicators cater to.
CMAs are well-suited for the home seller as a tool for pricing, while home buyers typically need an appraisal to assess the property’s value. Additionally, appraisals are usually required during the lending process, whereas CMAs aren’t a requirement.
How A CMA Works: The Process
In most cases, sellers working with real estate experts won’t see much of the CMA process. And although CMAs do require a fair amount of knowledge about your area’s housing market, they aren’t impossible to understand on your own.
Let’s look at the process these professionals take to put together a CMA.
When conducting a CMA, the first step is searching your area for comparable sales, otherwise known as “comps.” Comps are recently sold homes in your area that’ll ultimately help estimate your property’s value. Typically, comps meet the following criteria:
- At least three comps are selected for a CMA – the more comps that are used, the more accurate your estimate will be.
- A comp should be a property sold within 3 – 6 months of creating a CMA. If there’s a clear lack of recent on-the-market homes in your area, a real estate agent may use unsold, listed homes or expired listings to conduct a CMA.
The next step is to identify all the differences between the comparable sales and your home. Real estate experts will usually price out these differences with the help of a contractor to make the comps as identical to your property as possible.
For example, let’s say your home has an addition that a comparable property doesn’t have. A real estate agent would typically work with a contractor to determine the value your addition gives your property. Desirable features, like a fireplace, remodeled deck or addition will add to the sales price of the comparable property, while undesirable features will deduct from the sales price.
After all these adjustments comes reconciliation. In this stage, a certain weight is given to each comp based on how similar the property is to your home. Then, a specific estimate of what your price should be is calculated.
How To Do A CMA
If you find yourself intimidated by the concept of CMAs, you’re probably not alone. A quick search online pulls up endless images of graphs, charts and lots of numbers.
There are lots of moving parts to conducting a CMA on your own – but we’re here to break them down.
Step 1: Find Your Comps
As we discussed earlier, real estate experts start their CMA process with finding comparable sales properties.
Using an online listing site of your choice, look for homes that can compare to your property. When comparing a potential comp to your home, you’ll want to look at eight different components:
- Lot size
- Square footage
- Age and condition of the property
- number of bedrooms and bathrooms
- Special features
- Date of sale
- Terms of financing and sale
Each of these components play a role in the value of your comparable sale – to make things easier, you’ll want to find homes that mirror your property as closely as possible.
You can also check out FSBO’s Pricing Scout tool, which finds comparable sales based on square footage and room amount. This resource is easy to use and free, and it’ll give you a pricing estimate to help guide your CMA.
Step 2: Research
To gauge your area’s market, you may want to conduct some light research. To do so, consider looking at some local real estate data. This can include:
- Your area’s average home selling price
- Recently sold homes in your area
- The value increase of homes in your area since the time you purchased your home
Being familiar with this information can help you both gain a better sense of potential listing prices and identify reasonable offers in the future.
Step 3: Adjustments
The next step in conducting a CMA is to factor in those special features in your home that may add value. This includes fireplaces, updates and additions. Although you may not get all your money back from these features, they’ll certainly add value to your home.
Step 4: Check Yourself
Before definitively settling on a price, make sure you cross-check your estimate with other listing prices in your area or your FSBO Pricing Scout estimate. You want to be sure you’re asking a reasonable price, but one that still makes you happy.
How Accurate Is A CMA?
The accuracy of CMAs can vary among real estate professionals and will also vary when conducting one yourself. Keep in mind that the number of comps you use and how well you know your area will play a role in the accuracy of your estimate.
Conducting a CMA on your own may sacrifice some pricing accuracy, but you’ll still walk away with a good idea of your home’s worth.
Do I Need A CMA?
CMAs are an easily accessible and effective way to learn about your area’s housing market. They’re a great first step to take, especially if you’re feeling unsure as a first-time home seller.
If you’d like some more help finding a pricing estimate, FSBO’s Pricing Scout tool can instantly assess your home’s value for free. Just remember to conduct your own research as well – you know your home best!