A CMA, or Comparative Market Analysis, is an important tool for homebuyers and sellers. Generally created by the real estate agent listing the home, a CMA will help prevent over paying for a home, under selling a property, or poorly pricing a listing.
How a CMA is created
A CMA is generally created by the real estate agent listing the property. Before setting a listing price with homeowners, the real estate agent should use a computer program to gather data on similar homes in the area.
To ensure that only appropriate comparisons are used, the real estate agent will pull homes built around the same time that have the same number of rooms, and similar square footage. After that, the data should be broken down into recently sold homes, homes currently under contract, and active listings.
The real estate agent also might pull data from homes recently taken off the market. There are a number of reasons a listing may be removed, including that the home was priced too high. Pulling this data can help homeowners avoid the same pitfalls.
Why a CMA is helpful
A CMA helps home sellers and a real estate agent appropriately price a home. After the data is compiled, the real estate agent will frequently suggest disregarding the highest and lowest priced homes in the CMA (known as “outliers”).
Using the remaining data, home sellers can see what similar properties in the area are selling for and consider key features of their house to determine a listing price.
A CMA is also a vital tool for homebuyers. First, it will help determine a fair price to pay for a home. Secondly, it will show the fluctuation of the market for comparable homes.
Dropping home prices may be a red flag for a potential buyer, while rising home prices give a little more power to the seller. Either way, it helps homebuyers make a smart and educated decision.
Limits of a CMA
While a CMA is a vital tool, it does have limitations; it cannot account for why one home sold for more than another. First, a CMA does not take curb appeal and home condition into account.
Obviously, a home in disrepair generally will not be worth as much; today many homebuyers want a property that is in turnkey condition. Second, a CMA cannot account for buyer or seller motivation. Job relocations, financial situations, and family circumstances can all speed up the necessity to buy or sell a home.
Finally, a CMA might not be helpful in specific situations. Rural areas and especially unique homes might not have a good list of comparable houses. If there is not enough data, it can be impossible determine exactly how much a home is worth through comparison.
Any homebuyer or seller should ask for a CMA before making major financial decisions. It will help put a home’s price into perspective, prevent major pitfalls, and help homebuyers and sellers make a smart choice.