Creating or calculating a CMA or comparative market analysis is one of the first things real estate agent should know how to do. This is one of the major ways real estate agents price a home to be competitive in the current market. Regardless of the market, the CMA may change from week to week or month to month but it’s important to understand how to calculate a CMA not only for your fiduciary duty as a real estate agent but to gain an overall accurate sense of them current market.
What is a CMA
A CMA stands for “comparative market analysis” or sometimes “competitive Market Analysis”. The process is finding similar properties to the one that you are trying to sell and comparing the estimated home value of one home to another. It’s similar to an appraisal without actually being an appraisal. A CMA is determined by the real estate agent rather than an appraiser and is all part of the buying and selling process.
A CMA is the best way to determine the market value of a property. This crucial tool for listing agents is the key to getting a home shown quickly and sold fast. However, learning to complete and accurately calculate a CMA isn’t normally taught in real estate education courses. Many real estate agents get into the business without the necessary training or strategies for a CMA. For a real estate agent, generating a timely and accurate CMA is one of the best tools to gain new business and prospective clients.
Isn’t a CMA the same thing as the Zillow Zestimate?
The famous Zillow Zestimate is a controversial tool that the big real estate company uses to entice sellers with the prospect of what their home could be worth. The biggest problem with this analysis is that Zillow can only pull information from public records. It lacks the local information about the neighborhoods, changes to the house, and other details that might affect the current value. In one article by the Seattle Times, Zillow’s Zestimate overvalued a Washington state home by 700%. This is definitely a case of algorithms gone wrong. While a 700% over market value might sound attractive to sellers, chances are you’re not going to get the buyer to bite.
How to calculate a CMA
#1. Gather all the information and data about the property.
The best way to start out calculating a CMA is to gather as much information as possible about the property. You will need to gather at the bare minimum including but not limited to:
- Location, address, municipality
- Total square footage including, and garage
- Number of bedrooms and bathrooms
- Total number of rooms
- Acreage if applicable
- Year built
- Recent renovations and remodeling projects
- Interior finishes and materials
- External or additional features such as swimming pools, outbuildings, barns, and elaborate landscaping
#2. Collect tax information
Information from the local tax assessor will provide you with some basis of standard about the property. Not all property taxes are created equal and a lot of municipalities have different tax rates so it’s important to understand the subject property and surrounding properties and factor in the tax assessment is typically lower than market value. The tax information should point out the millage rate (or mill rate, the amount of tax payable per dollar of a property’s value) and the properties assessed value to compare your final valuation two.
#3. Collect the properties previous sale or listing data.
While this is not the end all/be all for a CMA, it can give you a good idea in determining the market value of the house, as one of the most important factors of determining market value is the market itself.
An appraiser will typically gather all recently sold listings that match the subject property as close as possible. However, there’s more information to be gleaned from the actual subject property sale compared to the market at time of sale. For instance, the last time the property was sold it may have gone under contract in a couple of days. This information can suggest that there was significant demand for the property. This also could mean that the previous sale left money on the table, something that appraisers and real estate agents take into account.
The list price, final sale price, terms, any price adjustments, and days on the market will be important data in determining the best CMA for the property currently.
Even collecting unsold listing data is important in a comparative market analysis. If the property was listed and never sold, this also plays a part in the current market. For whatever reason, if the property didn’t sell, it’s important to compare the reasons behind that unsold listing and today. Have there been renovations completed? Did a home inspection reveal too many issues? Finding out the reason that the listing did not sell can help you price it correctly this time.
#4. Recent comparable sales.
Here we go; this is where you get to look at recently sold properties that are similar to the subject property. In hot markets, it may be beneficial to only go back three months and in certain markets only back one month, especially if there are a lot of homes being sold. However, most appraisers look back at least six months to get a good idea of the market in a particular area and similar to the subject property over the last six months. This really is the heart of what a CMA is as an appraiser would up or down based on similar or different features.
Using the MLS, locate 4 to 6 sold properties that match or are as close to the subject property as possible. The closer the sale price to the listing, the more accurate those comparable sales will be. If you are very limited in comparable sales, you may need to go back even farther.
If there are limited sales or no exact matches exist, you may need to expand your criteria to get better results. Custom homes, luxury homes, or properties in smaller communities often have this challenge. However, try not to allow different housing types into the equation. Condo living, townhouse living, and single detached properties are all quite different from each other.
#5. Compare existing properties for sale.
Think of it this way, if there are three homes currently on the market that are similar to the subject property and all of them are priced within $20,000 of each other, the best way to sell the property quickly is to offer something more for less. This doesn’t necessarily have to mean if you have a similar property with better features and you price it the same horse just slightly below the next similar property, chances are that home will sell faster.
As a real estate agent, contact the listing agent of a property that is recently gone under contract. If you informed that listing agent that you have a property that’s similar going on the market soon, they may have other buyers waiting in the wings. This could make for a quick sale an excellent possibility.
#6. Don’t neglect the micro-market.
It’s amazing how markets can change from one neighborhood to another, even with in a one square mile. You’ll want to know what’s happening with in the neighborhood in which you are listing. If there’s a major road construction going on in one neighborhood, train tracks through another, or an established neighborhood just one block over with mature landscaping and a quieter atmosphere, all of those factors will play into the price of the subject property. Ask yourself if there’s anything happening in the immediate area of the property that could drive the price of the home up or down?
#7. Putting it all together.
Once you’ve started with the properties history, considered comparables and micro trends, you’ll want to package the results up into a listing presentation. Showing your work, putting together a short but concise report demonstrating how you came up with the number is going to increase your clients a buy-in and up your chances of getting the listing.
Related: How to Make 100K Your First Year in Real Estate
What about difficult, rare, or fixer-upper properties?
Not every home is going to be a cookie-cutter, crystal-clear, cut and dry comparable. You may run across uniquely remodeled homes, custom homes with extravagant layouts and architectural designs, or fixer-upper properties. All of these require unique CMA situations. For a fixer-upper, you can determine it as either nice, average, or needs work. For remodeled homes, make sure you specify in the MLS search the upgrades because it can greatly affect the homes value in comparison with properties that are newly constructed or of had multiple upgrades over time. For properties in rural areas such as farms, you may need to be more flexible with your filters and extend your search back at least one year.
FAQ for CMA:
What is the difference between a CMA and an appraisal?
There are subtle differences but the biggest being the appraisal is conducted by a licensed appraiser, understanding the current value for purposes of lending or insurance. A CMA is performed by a real estate agent to determine list or sale price.
What if the range of comparables is too wide?
If your comparables are not similar enough to the subject property you may need to readjust your comparables and find out if your overestimating or underestimating certain markets and whether or not you can adjust based on more comparables versus less.
How many comparables should you use in a CMA?
The more comparables the better as long as they are accurate. Offering a homeowner dozens of comparables when doing a CMA may seem a little overkill but when determining the price, finding the good, better, best scenario and offering the seller three or four comparables when you actually did your research with 10 or 12 is the best way to go.
Where should you get comps data?
The most accurate place to get your comparable information is from the local MLS. Big real estate companies are usually skewed and their algorithms can be off so tax records and the local MLS are usually the best. Third-party sites may not give you an accurate history of the property such as days on the market and price changes.
Calculating the correct CMA for a home does take some research, time, and experience. Utilizing all tools available, being as accurate as possible, and then being confident in your listing presentation will likely garner you the business and revenue you need.
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