What Is A Comparative Market Analysis (CMA) In Real Estate?

When you’re in the market for a new home or looking to sell your current one, figuring out how much to offer or ask can be a considerable challenge. How much a house is worth can seem fairly subjective, considering how many factors go into determining it. However, pricing property is a science. That’s why real estate brokers and agents conduct a comparative market analysis (CMA).

In order to conduct the analysis, agents search for recently sold homes in the same area that are as similar to the subject property as possible.  These homes, which are known as comps, or comparable sales, are used to conduct a sales comparison approach to pricing. This approach relies on the premise that you can figure out how much a home is worth by identifying how much it would cost to purchase a similar home of equal desirability.

The Rule Of Three

The first step for an agent preparing a CMA is to find three homes that have sold recently (within the past 6 months at most, but preferably 3 months). These three homes should be as similar and located as closely together as possible. Once at least three comps are selected, each one is thoroughly examined to pinpoint how it differs from the home in question. After the differences are itemized and priced out, the sales price of each comp is adjusted to determine how much it would cost if it were nearly identical to the subject property and sold in the current market.

Understanding How Real Estate CMAs Differ From Appraisals

Although a comparative market analysis uses similar housing market indicators to compare and identify regional home values, it’s not considered an official home appraisal. Whereas home appraisals are conducted by appraisers to create home valuations, CMAs are completed by licensed real estate professionals to estimate the fair market value.  Even though the resulting value is an approximation that also incorporates the goals of the seller or buyer of the property, a CMA is a complex process that requires technical knowledge of the overall market and how various aspects of real estate impact how much a property is worth.

Taking Market Conditions Into Account

Market conditions are a wild card with comparative market analysis and price setting in general. That’s why it’s best to use homes that have sold as close in time to the home currently being priced. A strong buyer’s or seller’s market might upend CMA values.  For example, a rapidly gentrifying neighborhood might not have strong comparables because housing prices can change dramatically within just a few months. If you’re looking for a home in a rapidly appreciating neighborhood, just remember that even though buyers and sellers may come to an agreement on price, in order to get financing, an appraisal will be needed to determine if that price is justified.

Do You Need A Comparative Market Analysis?