No matter how priceless an owner thinks his or her home may be, its market value will always be determined by the price a buyer is willing to pay. A comparative market analysis (CMA) is a tool to help ensure sellers get what they deserve for their properties by estimating market value.
Real estate agents perform CMAs by evaluating recently sold homes and homes for sale that are similar and close in proximity to the property in question, also called “comparables.” The search radius for comparables should be about a half mile in the city, a mile in the suburbs, and up to five miles in rural areas. The properties used in a CMA report must be comparable to the subject home in appearance and location as well as factors like size, age, condition, number of bedrooms and bathrooms, additional features, and general price range. Generally, CMAs should look back no more than three months when the market is in transition and no more than six months in a stable market.
Real estate professionals can get additional relevant information from public records and the Multiple Listing Services. Active listings will not always stay at the asking price, but they are important to include because they are considered direct competition by prospective buyers. Typically, sellers’ markets will inflate home values, while buyers’ markets tend to deflate them. The probability of receiving an acceptable offer or successfully completing a sale diminishes significantly when the asking price exceeds the current market value.
Although reports can vary from two pages of comparable home sales to a 50-page comprehensive guide, the length and complexity of a CMA usually depends on the performing agent’s business practice. A broker price opinion is a formal, more concise version of a CMA. According to Zillow, CMAs should list a low, median, and high price for the subject home as well as an estimated average number of days on the market. A good CMA can reveal what similar homes are selling for, how long it is taking them to sell, and final sales prices in relation to list prices.
Susie Weems, broker/owner at Susie Weems Real Estate, says a good CMA or BPO will also provide information on market conditions, property conditions, tax records, amenities, and anything else on MLS that could help determine fair market value. She says brokers must produce all information found on MLS plus any personal knowledge they have about the neighborhood. She says CMAs are required on all her listings for relocation companies, and BPOs are required for all her HUD and Fannie Mae listings. The goal is that a CMA will be helpful to every party involved in a real estate transaction, Weems says.
Joyce Johnson, managing broker at Welcome Mat Realty, says CMAs provide all stakeholders with a reasonable expectation of property value based on market data and the broker’s professional opinion. CMA reports should provide sellers with an estimated sales price range that their homes should sell for within a specified time horizon, typically 30 to 90 days.
Johnson says her CMAs typically include the following data components:
· three closed sale comparisons
· three active listing comparisons
· market demographics
· market sales statistics
· subject property inspection
· repair bid summary and cost proposal
· detailed photographs of the property
It’s hard to find all components for all properties, she says, so her advice is to include as many as you can. Johnson also says some brokers will offer to perform a CMA for free with the expectation they will be given the listing should the owner decide to sell.
Thorough knowledge of the property sale dynamics in an area is necessary to make judgments based on the data presented in a CMA. Real estate agents work in the subject market every day and understand the local nuances, amenities in high demand, and key buying drivers that sell homes in the area. With a quality CMA and the professional opinion of the performing agent, a seller should be able to estimate a likely market value and determine a reasonable listing price for his or her home. Clients may not be able to control the economic climate or the supply of homes available, but they can control presenting their home in the best light and listing their home at the right price.