The CMA Explained
Whether you’re hoping to buy a house or sell one, understanding the CMA is essential. Here’s everything home buyers and sellers need to know.
A home’s price is a moving target—based on where it is, when it is listed for sale, whether it has that trendy open kitchen with upgraded appliances, what the current market conditions are, and other parameters. So if you’re tasked with pricing your own home before putting it on the market, how do you figure out how much your house is worth?
Home sellers thinking about this question will no doubt hear they should figure this out by asking a real estate agent for a comparative market analysis, or CMA. But what is it? The simple answer is a CMA is a comparative market analysis estimate of a home’s current price value based on the recent sales of similar houses in the area, usually within the same subdivision.
CMA = Comparative Market Analysis
Real estate agents create CMAs by looking at comparables, or comps, of recently sold properties that are similar to your own home. Or, if you’re a home buyer, the one you want to make an offer on. Similarity is key, since it gets you closest to an apples-to-apples comparison.
Let’s say your own home has three bedrooms, two baths, and is around 2,000 square feet of living space. Your neighbor’s house down the block is also a three-bedroom, two-bath house clocking in at 1,950 square feet, and it sold last week for $300,000. Odds are, your place is worth about that same price.
Comparable homes should be in the same or similar neighborhood, have similar square footage, number of bedrooms, bathrooms, kitchens, features, and upgrades. But since most houses are at least a little bit unique, how identical do they need to be?
Tristan Ahumada, CEO of Lab Coat Agents, says comps should ideally have the same number of bedrooms and bathrooms, be located within a quarter-mile of your home, and within 200 square feet of your home’s size. They should be in your zip code and school district too.
It’s also important to make sure your CMA analyzes recent sales. Current markets can change quickly, so not going back any more than four to six months is a better comparison.
Another rookie mistake? Looking at listing prices on homes and assuming those are realistic comps. Those numbers may be inflated based on home sellers’ hopes of what they’ll get rather than reality of what buyers currently are willing to invest in houses.
Or, in really competitive markets, agents purposefully under-price their listings to generate more interest, and hope for several offers or bids on the same house moving the price upward.
Bottom line: CMAs should take into account the final sale prices of homes.
The more comps you use, the better you can determine a home’s current price. But if you have at least three comparable, recently sold properties, you should be able to average out their prices and get a good sense of what a given home is worth.
Request Your Home’s Instant Value or a Professionally Prepared CMA
In fact, discussing a CMA’s comparable sold prices is a great way to get to know us during our free consultation with you. This helps you to make better decisions about pricing your home in the current market.
The Martin Group would be happy to email you a CMA before you even sit down to have a conversation with us. Consider it a good kickoff to our working relationship and a way to get to know us as real estate advisers.
Do Your Own Comparative Market Analysis
While your real estate agent can do a CMA for you, you might want to do your own analysis. You can find comps by searching for recent home sales in your area on several real estate sites that advertise homes, such as Zillow or Trulia.
One way to quickly assess how much a house is worth is to use an online home value estimator. You plug in an address, and within seconds, a computer algorithm will scan comps, crunch the numbers, then deliver an estimate of how much the house in question is worth. This is a quick method and usually not totally correct.
While online home value calculators are a great starting point, they aren’t the end all, be all. Like any fully automated tool, they can’t take everything into consideration that a human could. Consider it a starting point for further research or a real estate agent can explore further.
Consider Condition of House
OK, so you’ve found your recently sold comps, and hopefully they match up with the property you’re analyzing. The more subtitle part is taking things like condition, lot size, extras, and curb appeal into consideration.
You can’t compare a fixer-upper to something with lots of upgrades. Ideally, you will be able to find comps in a similar condition to the house you’re trying to price. But if not, be wary of just adding the full cost of your remodeling to a home’s price.
In other words, just because you spent $10,000 installing an in-ground pool does not mean home buyers are willing to pay you $10,000 more. On average, homeowners should expect to make back only about 56% of the money they spend on renovations, and that return on investment varies widely based on what you do. Find the top home improvements that return the most at resale of the home.
Also try to find comps with a similar home style. In our southeast Florida market, for example, mid-century brick homes often bring a lower price than stucco on concrete block.
Some market knowledge is harder for do it yourselves. Every area will have different things that are desirable, and upgrades or extras will be worth more in some areas than others. For example, a high-end kitchen remodel adds between $20,000 and $40,000 to a home’s price. But if you’re doing a CMA for an area where home prices average $150,000, those numbers are going to be much lower.
Going Beyond Comps
A licensed Appraiser gives you an actual Appraisal of your home, being one of the best methods to quickly find a price point if you want to put your home quickly into the current selling market. Buyers also take note of these in making their decision to purchase a home. Also the appraisal would let you know if your price for your home is too high for the current real estate market.
Still not sure if you have done enough homework? Another tactic to further hone your CMA is to ask your real estate agent to get the scoop on homes that aren’t sold quite yet, but are currently pending – waiting to close.
Getting the inside scoop can give you an edge with pricing, and give you a heads-up about potential bumps down the road. For example, did a comparable home have multiple offers? Did the buyer have any appraisal issues? Did the seller have to give any concessions to push the deal through?
All of this can give you an up-to-the-minute snapshot of where the market is headed. Sometimes weird or low ball comps pop up, throwing off your price estimate.
For example, if a home sold for 15% less than other homes in the neighborhood because the buyer paid all cash and closed in two weeks. The buyer needed to move quickly and accepted the terms. You could have easily used this property as a comparable home, but these details certainly would affect the final sales price.
Our CMAs include detailed information and are not instantly developed. We prefer to preview your home in person, study the comparables, and then come to a price point relative to the current market of homes actively listed for sale.
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