Preparing a Comparative Market Analysis
A comparative market analysis (called a CMA for short) is a property analysis that real estate agents use to help sellers and buyers determine the market value of real estate. A CMA is not an appraisal, but it does contain some of the same types of information that you'll find in an appraisal. While banks will not use a CMA to verify value before approving a loan, experienced real estate agents can often use the report to come very close to the dollar amount a property will ultimately fetch.
CMAs help you put a value on property for both sellers and buyers, so it's important to learn how to prepare the reports as soon as you start working as an agent. Get started by preparing a practice CMA for your own home, then get more experience by compiling CMAs for any homes or land with which you are familiar.
Although the methods differ, nearly all Multiple Listing Services offer their agents the ability to perform CMAs with the same computer software that is used to search for current and sold listings. You'll find that the software is very easy to use. Instructions included with each system will take you step-by-step through the CMA process.
What is an appraiser?
Real estate appraisals are performed by licensed appraisers — individuals who have attended school, passed an exam, and worked a certain number of hours under the supervision of an experienced appraiser to gain the skills required to offer a detailed opinion of property values. Lenders use appraisers to determine the value of homes on which they lend.
Agent CMAs are prepared by comparing the property you wish to price, called the subject property, with three or four similar properties that have sold in the recent past. You must always use the sales price of sold properties when doing a CMA. This is the data that an appraiser will use when a potential buyer is looking for a loan. Property does not sell based on the prices of sold properties alone — supply and demand is also a factor.
You will also need to compare the subject property to other properties that are currently available to see how it stacks up against the competition.
Although listed prices are often inflated, they will give you an idea of what buyers see when they are shopping for a property with similar features or in that price range. Using statistics of properties that were unable to sell (called expired in real estate jargon) will also help finalize the picture.
Your goal is to calculate an amount that is as close as possible to what a buyer will ultimately pay for the subject property and what it will appraise for if the buyer is obtaining a loan.
The more details you have about the subject property, the easier it is to prepare a CMA. You should know:
Location and year built
The total acreage or lot size
The number of and types of rooms
Structural details, such as insulated versus single-pane windows, type of heat and air conditioning, size and type of garage, basement, fireplace, etc.
Facts about components, such as the types of flooring installed Overall condition of the structure and its components
Don't be surprised if you cannot find three properties that match the subject property exactly, but do the best you can to find close comparisons. CMA software allows you to deduct or add dollar amounts for characteristics of comparable properties, to make them more like your subject property.
Your local real estate market will dictate how far back you should search for sold properties. In a quickly changing market, where prices are escalating rapidly, you might choose to use only properties that have sold during the past few months. In a slower market, you can search back over the previous year. Always use the most recent sales possible when compiling a CMA. Make adjustments on the comparable properties that are currently available and the expired properties as well. All three of these will help you further determine the value.
Your state real estate laws might require you to insert a statement within your CMA that confirms it is a comparative market analysis and not a certified appraisal. States that require that type of disclosure furnish agents with the specific wording to be used.
In a rising market the supply and demand factor will make listing prices more important. In a steady market, it is the sold prices that will be given the most weight. In a falling market, it may actually be the expired properties that show what the trends are and how much the subject property is actually worth.
The ability to compile an accurate CMA for clients is a skill you will develop over time. You will find that the task is much easier when you can make comparisons from firsthand experience rather than through reading a list of features printed on an MLS sheet. Keep up to date with listings by showing them to buyers, previewing them yourself, and by attending every open house you possibly can. When it's time to do a CMA you'll recall those listings and be in a better position to judge exactly how similar they are to your subject.