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What is a Comparative Market Analysis and Why Do You Need One?

Nicki & Karen » November 25, 2019

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Realtor conducting a comparative market analysis

A comparative market analysis is a highly beneficial tool that can help you determine how much your home is worth before placing it on the market. For buyers, this tool is a great way to make sure that the listing price of the home you’re interested in is at the right amount. If the price is much higher than the value of the home, a CMA will allow you to identify this issue before you’ve made an offer on the property. A CMA is a thorough assessment of a home and every one of its attributes. This assessment is made by comparing the features and elements of the primary home with nearby properties.

Whether you are currently interested in buying a home or are thinking about placing your home on the market in the near future, a comparative market analysis can be very helpful in making sure that this process goes smoothly. The following will provide a guide on everything pertaining to a comparative market analysis, which includes why a CMA is necessary for buyers and sellers and how a CMA is made.

What is a Comparative Market Analysis?

 

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A comparative market analysis is a kind of assessment that’s aimed at identifying how much your home is worth in the current market. This assessment will take every element of your home into account, which includes all of the interior and exterior features of the property. If your bathroom has recently been remodeled, this upgrade to your property will slightly increase the final results of the CMA. When a real estate agent starts to create a CMA, they will put a price to everything in your home and on the property, which should allow them to arrive at an accurate assessment of the property value.

To start, a real estate agent will take a tour of your home or the home that you request the CMA for. While the home doesn’t need to be perfectly cleaned and organized, the overall quality of the property will play a part in the end price that the agent arrives at. If you are the owner of the home that’s being assessed, the real estate agent in charge of performing the CMA will likely recommend some improvements that you could make to the home that would increase the property value before you list it.

Once the real estate agent of your choice puts a price to every component of the property, they will compare your home to similar properties in the surrounding area. These comparisons are made with the help of the Multiple Listing Service. The information that’s gathered before making the comparison includes properties that have been closed on in the past six months, listings that are active or expired, and home sales that are currently pending. The goal is to find 2-4 properties that are very similar to the main home, which should help to make a very precise estimate of what the home’s value is.

There are many aspects of a home that a real estate agent will consider when creating a CMA, which center around the exterior, interior, and other attributes of the home. For the interior, the agent will look at the overall square footage, the number of bedrooms and bathrooms, the quality of each room, and the flooring. As for the exterior of the home, the most important elements extend to the parking space, size of the yard, siding, windows, and the current quality of the roof. If your roof has recently been upgraded, this alteration can add significantly to the value of your home. Any HVAC system or water heater on the property will also be taken into account with the CMA. There are two times when a CMA is essential, which include when you’re making a seller listing appointment and when you’re trying to find a good deal as a buyer.

1. For Sellers

 

When you make a seller listing appointment with a real estate agent, they will almost always conduct a comparative market analysis, which is designed to give you some useful information before you’ve fully decided to place your home on the market. The real estate agent you hire should start the CMA before they’ve met with you for the listing appointment. If the agent has a CMA on hand, they can answer any question that you might have about the current market value of your home. The agent will almost use the comparative market analysis to provide you with a listing price that they believe your home would sell at. Most agents will suggest a price that’s slightly above the current market value of the home, which gives you some room to negotiate when a buyer shows interest in the property.

The CMA that’s conducted for a seller listing appointment isn’t exactly completed when the agent arrives at your home. At this point, the agent will have gathered all of the information on the MLS pertaining to your home and any similar homes in the area. However, they won’t be able to look at the interiors of your home in order to complete the CMA until the date of the listing appointment. At this time, they will take a tour of your home and update the information they’ve already gathered so that they can provide you with an accurate CMA.

Along with the interior features of your home, the agent will also take the state of your neighborhood into account. Once the CMA has been completed, the agent will provide you with the current market value of your home and what price point they believe your home should be listed at. They may also provide you with some useful recommendations on how to enhance and renovate your property in a manner that could increase its value.

2. For Buyers

 

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While a CMA is primarily performed for sellers before a listing appointment takes place, it can also be requested when you’re buying a home. For a buyer, this type of analysis will help you determine if a home that you’re interested in is listed at the right price. If your agent finds that the correct market value is significantly lower than the listing price of the home, you could decide to look for another property or use this information when negotiating on the price with the current property owner.

If you’re entirely unfamiliar with the place you’re about to move to, a CMA can help put your mind at ease by giving you some much-needed information on the quality of the home, the correct price point, and the state of the surrounding neighborhood. When requested by a buyer, a CMA will be conducted in its entirety by the agent before you receive the results. They will take a look at the interior features, exterior features, and other attributes of the home to ensure that the CMA is as accurate as possible. Without having a CMA performed, you could end up paying far more for a home than it’s worth, which could cause you to later regret your purchase.

Why You Should Get a CMA

 

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There are plenty of reasons why it’s a good idea to obtain a CMA whether you’re buying or selling a home. The purpose of a CMA is to identify the current market value of a property. If the surrounding real estate market is in poor health when you decide to list your home, it’s essential that you know this before listing your property on the market. Without conducting a CMA, you could list the home at a much higher price than it’s worth when taking the wider market into account, which means that your home could remain on the market for months or even years without selling.

Even though a CMA is highly beneficial for a seller, it’s also recommended that you request this analysis from your agent when buying a home. By obtaining the information from a CMA, you will be able to determine if the home that you like is worth the amount of money that it’s listed at. A comparative market analysis is almost always free, which means that there’s no downside to asking for one when you first hire an agent to help you with the home buying or selling process. Even though it seems like creating a CMA would be difficult and time-consuming work, a CMA can be completed in very little time because of all of the tools that an agent has at their disposal.

Ensuring a Quality CMA

 

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If you want your CMA to be as accurate and precise as possible, there are a range of factors that must be taken into account during the process, which include:

  • When the property sold
  • Where the property is located
  • Main characteristics of the home

These three factors encompass many different elements of a CMA, which should be included if you want the market value to be correct. When taking the property into account, it’s essential that the properties your home is compared to are taken from the past few months. While some agents will include comparable homes from six months to a year before your home is being listed, it’s important that the CMA only includes home from the previous 2-3 months in their analysis. If the CMA goes beyond this time range, it’s possible that the market would have changed significantly since the home was sold, which would make the comparison useless.

As for where the property is located, most agents will try to narrow their search to homes within the same neighborhood or subdivision. While this isn’t always possible, it does make for the most precise estimations. When trying to find comparable properties based on the characteristics of each home, it can be difficult for your home to match with another. While your HVAC system and yard size might be similar, the roof of the other home could be older than yours, which would cause issues with the final CMA. As such, the real estate agent will make adjustments to compensate for these slight differences.

Using a CMA to Determine an Optimal Listing & Purchase Price

 

If you’re thinking about buying a home or placing your current home on the market, you might want to request a comparative market analysis, which will determine the value of the property by comparing the features and size of the main home to other homes in the area that have recently sold. When you’re about to list your home, a market analysis gives you a good idea of what your home will be able to sell for.

Even if you believe that your home is worth $500,000, homes of a similar size and feature-set may be selling for $50,000 less in your surrounding area. The current health of the market plays a big role in what you’ll be able to get for your home, which is why it’s highly recommended that you obtain this analysis before placing your home on the market. If you’re thinking about buying a home and believe that you’ve found the right one, a comparative market analysis will give you a better idea of the value of the home when compared to the nearby real estate market.

If similar homes have been selling for much less in recent months, you can use this information to help you negotiate a lower price point. Since a CMA is usually conducted for free, there’s absolutely no reason why you shouldn’t schedule one. If you need more help with listing your home on the market or finding a home that matches your specifications, contact Nicki & Karen Southern California Luxury Real Estate today to schedule your first appointment with one of our real estate agents.

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