Whether buying or selling knowing how similar homes are priced that are actively listed and recently sold is key to knowing how your home would fare when listed for sale and what your offer price should be if you are buying a home.
Comparative Market Analysis (CMA)
It is very important that a Realtor perform a comparative market analysis. This is a report that analyzes the prices of similar properties in the same area. A comparative market analysis is also known as a CMA. Think of a CMA as a fact-based portrait of the home including information such as the number of bedrooms and baths, the square footage, age of the home, and desirable amenities such as fireplaces and pools.
What makes a good CMA?
A comparative market analysis is an examination of homes that most closely resemble each other. Comparing a 2 story home with no pool to a 1 story home with a pool is not a very good comparison.
Homes that are currently on the market for sale are ACTIVE Listings. These matter to a seller because this is direct competition and buyers will most likely be looking at all the similar homes in the area. Since buyers will be looking at all the active properties, its important to know what you are up against. It is crucial to note that listing price does not necessarily reflect what the home will sell for. Sellers can set a listing price wherever they would like, but that usually does not end up being the sales price. Homes sell at the price buyers are willing to pay for it.
Homes under contract are PENDING listings. They have not yet closed. A listing agent never discloses the price of the pending sale. It is important to include pending sales in a comparative market analysis because it suggests the direction the market is moving and shows that homes with a certain list price are going under contract even if we don’t know the specific sales price.
A CMA absolutely must include SOLD listings. Homes that have closed in the last 30 – 90 days are comparable sales. Sometimes comps go up to 180 days dependent on the availability of comparable sold properties. Sold listings are a very good indicator of market value. The price a home sold for shows what a buyer is willing to pay for a property similar to yours. Pay close attention to the SOLD price!
Beyond the CMA
Finding good comparable properties is essential to a good solid CMA that will help when deciding on the listing price of your home or how much to offer on a home you are wanting to buy. Beyond the CMA is the “art” of the sale that is more than the data, details and statistics. A home may be the same in the data but once inside the home, perhaps it doesn’t have an easily flowing floor plan or the layout of the kitchen is cumbersome or the location in the subdivision is less than ideal. How a property makes a buyer feel when they walk in the door plays into how much they are willing to spend to buy it.
Do not buy or sell without a CMA in hand. A Realtor should be happy to provide you a market analysis. This is the first part in determining price. Looking beyond to other factors not reflected in the CMA is the second part and together with your Realtor you can conclude on a list price for your house or if purchasing what a reasonable offer should be.