A CMA, which is short for comparative market analysis, is used to determine a homes fair market value by evaluating similar properties, which are called comparables or comps. So let’s talk more in depth about what a CMA is and why it is beneficial to both sellers and buyers!
What is a CMA?
A CMA is crucial in determining a home’s fair market value, because we know that the market determines the sale price. But a CMA not only helps the seller determine a list price, it also helps a buyer determine if their dream home is priced correctly & a good real estate agent can use a CMA as support, when negotiating an offer.
One of the first steps of compiling a CMA is to determine the best comps for the property that is being sold. The best comps are located in close proximity, ideally the same neighborhood and should be about the same size, condition and age and have sold within a relevant time frame, six months is a good benchmark.
What does a CMA look like?
Most real estate agencies offer a standard CMA template free to get started. If you’re working with a Real Estate agent, they can sit down with you to discuss inventory and analyze recent sales in your area. Then adjustments can be made based on the features of the comparable homes.
There are many benefits to creating a comparative market analysis. Going through this process can be advantageous, as it will make you think objectively about your purchase price if you plan to submit an offer. Buying homes can get emotional because it’s easy to get attached when you find the right place. In general having a connection to a home is a great thing, but it can cloud your judgment. Writing out the information and itemizing the data can help you look at the facts and justify your purchase price. Running through the CMA also gives you the opportunity to reassess the property. As you tour a home you might find that the wrong things jump out at you and influence your perception of value. The CMA makes these types of oversight glaringly obvious, especially when you’re comparing properties side-by-side.
At the very least, taking time to put together your analysis will make you a more educated buyer. A CMA helps you to understand the market where you are buying and apply logic to your decision. Looking at recent transactions will help you spot the good deals versus over priced homes.
How reliable is a CMA?
A CMA is not perfect or full proof. There are flaws with this type of system to keep in mind. No two homes are exactly the same. Even new construction condos at the same complex can have slight differences. Although you can get pretty close, you’ll never be able to compare apples to apples. One of the reasons why we put so much importance on a CMA over other metrics, like median price statistics, is because of outliers. An example of an outlier could be a distressed property sale like a foreclosure, which tend to bring median prices down.
One other point to mention is that the real estate market is not stagnant, and fluctuations can happen in a short amount of time. Something as predictable as the change in seasons can sway prices. Economic factors such as supply in the market play a major role as well. For example the current market situation in Spokane is making it very competitive for buyers due to high demand and low inventory.
The best way to put together an accurate CMA is to know the inventory and the best way to do that is to actually see the homes for yourself. Start your house hunt early so you have time to get to know the market. As you view properties, you can collect sheets and take notes about each place. These notes will come in handy down the road when it’s time to compare your options. If you have any questions about this or would like to start your house hunt now please contact me!