Seller FAQ: How Much Does A Comparative Market Analysis Cost?
How Much Does A Comparative Market Analysis Cost?
Home listing prices can seem like the greatest mystery in the world. If you are planning to sell a home, one of the first things you need to do is to set a listing price. Now, if you are house hunting, you need to figure out whether or not the home sale price is worth making an offer. But the question is, how do real estate agents help home buyers and sellers determine an appropriate home listing price? It is through the use of a Comparative Market Analysis!
While it can be a challenge to find the true worth of a home, assessing the neighborhood, selecting the right comparable properties, and visiting the home in person can help you come up with an accurate CMA.
This article will discuss the essential factors to consider in comparative market analysis in real estate. You can also check out the step-by-step guide on how to calculate for CMA.
What is a Comparative Market Analysis?
Comparative Market Analysis (CMA) is an in-depth report on a house’s sale price. It’s a valuable tool that professional real estate agents use to assess home values. CMA estimates are based on home sale prices of similar properties in the area.
This useful report allows homeowners to estimate the value of their home in the current market so that seller agents can quickly draw a listing price. At the same time, CMAs help homebuyers to evaluate asking prices quickly.
What makes a good CMA?
It’s vital that real estate agents find comparables, or the most similar properties to their client’s. Ideally, good CMAs look at properties in the same neighborhood or street – up to a three-mile radius at most.
It should also look into properties with similar square footage, characteristics, and the number of rooms and amenities.
What goes in a CMA?
To give you an overview, CMAs factor in these items into the report:
The address and neighborhood of the home and its comparable properties
Information and specifications of each property
Sale value of comparables
Adjusted sale values
Total square footage of each property
Adjustment values for rooms (bedroom, bathroom, garage, kitchen) and lot sizes
When Is a CMA Necessary?
Since CMAs are a foreign subject, you may be wondering when they will come in handy. These are the two most common instances when real estate agents will run a CMA:
Situation 1: Helping a Buyer Find a Good Deal
Professional real estate agents will run a CMA to help homebuyers assess if a specific home sale is worth it
Especially if a homebuyer is looking into an unfamiliar neighborhood, a CMA will provide sufficient insight into what makes a good deal.
Situation 2: When Setting a Home Sale Price
If you’re planning to sell your home, scheduling a listing appointment with your real estate agent will be a good idea.
Prior to meeting up with you to discuss the sale price, your real estate agent will prepare a CMA based on online listings to get an idea of the real estate market in your area. After the initial listing appointment, your real estate agent will typically update the CMA after visiting the neighborhood and assessing the condition of the property.
Step-by-Step Guide: How do You Calculate Comparative Market Analysis?
The simplest way to calculate the CMA of a property is to divide the sales price of comparables by their square footage. This will give you the property’s price per square foot.
However, coming up with a CMA isn’t simply about doing the math. A quality comparative market analysis report incorporates a real estate agent’s thorough research and experience with the local market.
Here are the essential steps for calculating a comparative market analysis:
Step 1: Familiarize Yourself with the Neighborhood
Like I said, to get a quality CMA, you can’t just compare properties’ price per square foot and expect to set the right price.
CMA should incorporate knowledge about the neighborhood’s history, population, and the current and potential rental value of real estate.
It’s also critical that CMA incorporate an assessment of the quality of the neighborhood. I’m not just talking about curb appeal. Quality of life in a neighborhood also takes into account proximity to school districts, recreational areas, parks, and other essential amenities.
Other features that will have a negative effect on neighborhood quality include dilapidated commercial buildings and proximity to highways, industrial facilities, factories, and garbage dumps.
Step 2: Do a Pre-Assessment Online
Before visiting the property in person, a pre-assessment of the listing online will help you prepare for the first meeting with the seller.
Important information about the property that you should look for include:
The home size
The lot size
When the home was built
The construction type and architecture
The current condition
Step 3: Select and Assess Comparable Properties
Finding the most similar comparable properties in the area is crucial for a quality CMA. You should choose the best three or four comparables to end up with an accurate report.
Start your preliminary CMA by getting a rough idea of your home’s value by assessing comparable listings on platforms like MLS, Zillow, HouseCanary, Property Shark, and Redfin. Use these platforms to get an idea about property value estimates from:
Active listings
Pending sales
Recently sold or closed properties
Expired listings
However, keep in mind that real estate listing platforms should only supplement your research as they don’t provide a complete understanding of the local real estate market. Property value estimates are a good starting point when you calculate the price per square foot of a property.
Here are the important factors you should look into for comparable properties:
Listing Status
Checking the status of the listings will give you an idea of the type of home that is in demand in your area.>
Recently sold comparable listings will help you assess the value of the subject property. It will give you an idea of how much buyers are willing to pay for that particular type of home.
Expired listings will give you an idea of the type of homes that aren’t doing well in the current market.
Pending listings will allow you to check how much similar homes are selling for. It will also give you an idea of your competition.
Location
You should only choose comparables within the same neighborhood. However, the term “neighborhood” can be ambiguous for homes that aren’t within a gated community. There is generally a community consensus on the borders of a neighborhood, usually indicated by geographic or commercial features like highways, railway tracks, or shopping malls.
If you live in the same street, subdivision, or school district, then you won’t have a problem.
A comparable property within a one-mile radius is best. If it’s not available, a property within a three-mile radius is still sufficient.
Date of Sale
Remember that you should also consider sold listings.
In a CMA report, it is best if you consider properties with a recent date of sale. Especially in a hot real estate market, home sale prices rise fast, and home values from the past year or a few months prior will be irrelevant in the current market.
If the subject property is in a slow market, you may have no choice but to use an old listing as a comparable. In these cases, you should assume that the market has changed since the listing closed.
Main Features and Amenities
Comparable homes should also have similar characteristics, features, and amenities as the subject property or in the neighborhood.
Does the home have a swimming pool, or is it located close to a clubhouse in a gated community? Is it an oceanfront home? You should look for listings with similar amenities.
The main factors in question are the lot size and the square footage. Ideally, you should only choose comparable properties with a difference of 300 square feet from the subject property.
You should also look into the number of bedrooms and bathrooms. Naturally, homes with more rooms are more desirable to home buyers.
To narrow down your search, you can also look into architecture and construction type.
Date of Construction
Another important factor to consider is when the home was constructed.
Generally, brand-new modern homes are valued at a higher price compared to older homes. However, there are some exceptions, such as vintage and mid-century homes that might need a premium for new construction.
Different neighborhoods will have varying prices for construction on older and new buildings, so make sure to evaluate homes that were built within 10 to 25 years from the subject property.
Step 4: Calculate the Price Per Square Footage for Comparable Homes
After selecting your comparable listings, it is time to bring out your calculator.
Here’s how to determine how a subject property should be priced:
List down the selling prices of each comparable property, then divide that value by their square footage. You will get the price per square foot of each comparable home.
Find the average price per square foot of all the comparable homes by getting the total price per square foot of all comparable homes, then dividing by the number of comparable homes.
Multiply the average price per square foot by the square footage of the subject property. The value that you get will be a good estimate of how the home should be priced.
For example, choose three comparable homes to run a CMA on a 2,500 square foot home:
Comparable Property
Total Square Feet
Home Value>
Price per square foot
Home #1
2,750 square feet
$490,000
$178
Home #2
2,350 square feet
$475,000
$202
Home #3
2,200 square feet
$450,000
$204
From the data above, the average price per square foot for the three comparable homes is $194.7. By multiplying subject property square footage of 2,500 by the average price per square foot, we get $486,000. This value should be an accurate starting point to determine the home sale price of your subject listing.
Step 5: Visit the Home In Person
Even though you’ve calculated for the home’s ideal sale price, this value can go up or down based on the actual quality and condition of the home. Any issues in need of repair, upgrades, or replacement will lower the sales price.
When touring a house, make sure to look into:
The condition of the home
Additional features and amenities (pool, centralized air conditioning, heating power generator)
Keep in mind that the CMA report provided by your real estate agent during the listing appointment is due for an update.
After reviewing how competitive the market is, assessing the neighborhood and home in person, and comparing listings, your real estate agent will incorporate all research into the final CMA report.
Price adjustments for the subject property may be applied to compensate for the differences in the subject property’s characteristics, amenities, and structure.
Conclusion
Learning about comparative market analysis’ will provide you with a secret weapon on your next house hunt or sale. Understanding how to use real estate research to your advantage will provide you with the number to effectively negotiate prices.
While it is possible to run your own CMA, you should understand that this task shouldn’t be taken lightly. Aside from requiring a lot of legwork and paperwork, a quality CMA is backed by the discernment and experience of a professional real estate agent.
Surprisingly, potential sellers ask me a few times a month, “How much does a Comparative Market Analysis cost?” The answer is always the same…ZERO. Like most Realtors, I provide Comparative Market Analysis’ (CMA) FREE of charge whether you allow me to list your home or not and NO strings are attached.
In simple terms, a CMA provides your homes worth in the current real estate market.
