Uncategorized November 28, 2018

CMA: Comparative Market Analysis

How to Use a CMA Comparative Market Analysis

by Elizabeth Weintraub

 

Before putting a home on the market or listing with a real estate agent, savvy home sellers obtain a comparative market analysis, also referred to in the industry as a CMA. You’ve probably received direct mail letters or postcards from local real estate agents about CMAs. These pitches offer you a free report to tell you how much your home is worth. Sellers use a CMA to figure out home pricing.

What is a Comparative Market Analysis?

Although reports can vary, from a two-page list of comparable home sales to a 50-page comprehensive guide, the length and complexity of the report depends on the agent’s business practice. However, standard comparative market analysis reports tend to contain the following data:

  • Active Listings. Active listings are homes currently for sale. These listings matter only to the extent that they are your competition for buyers. They are not indicative of market value because sellers can ask whatever they want for their home. It doesn’t mean any of the prices are realistic. The offered sales prices do not reflect market value until they sell, and in buyer’s markets, for example, most sell for a lot less.
  • Pending Listings. Pending sale homes are formerly active listings that are under contract. They have not yet closed, so they are not yet a comparable sale. Unless the listing agent is willing to share information about the pending sale — and many are not — you will not know the actual sold price until the transaction closes. However, pending sales do indicate the direction the market is moving. If your home is priced above the list price of these pending sales, you could face longer DOM.
  • Sold Listings. Homes that have closed within the past three months are your comparable sales. These are the sales an appraiser will use when appraising your home for the buyer, along with the pending sales (which will likely have closed by the time your home is sold). Look long and hard at the comparable sales because those are your market value. You can use 6 months of comps if there are not enough sales to produce a good report with three months.
  • Off-Market / Withdrawn / Canceled. These are properties that were taken off the market for a variety of reasons. Usually, the reason homes are removed from the market is because the prices were too high. The median prices of this group will almost always be higher than the median prices of comparable sales. However, listings cancel also for the following reasons:
  1. Seller’s remorse. The sellers decided they cannot part with their home and no longer want to sell.
  2. Priced too high. Nobody made an offer or the only offers received were low-ball offers, which were rejected.
  3. The DOM were too long. Agents sometimes withdraw listings so they can put them back as a new listing and entice more buyers.
  4. Repair requests. The homes were once under contract and after the home inspection, the buyer requested repairs which the seller refused.
  5. Seller fired the agent. It’s not uncommon for unhappy sellers to fire an agent and hire a new agent.
  • Expired Listings This group will reflect the highest median sales price because they did not sell and were probably unreasonably priced. Some of the expired listings could also show up as an active listing, listed by a new agent at a new price. Listings also expire because they were not aggressively marketed or because the home was in need of repairs.

Examining Comparable Sales

Comparable sales are those that most closely resemble your home. It is difficult to compare a tri-level home to a single-story home. Select the homes from this list that are mostly identical to your home in size, shape and condition, such as:

  • Similar square footage Appraisers compare homes based on square footage. Larger square-foot homes are worth less per square foot than smaller square-foot homes. The variance among a group of median-priced homes ideally should not exceed more than a 10% to 20% variance in square feet, plus or minus.
  • Similar age of construction Ideally, the age of the home — the year it was built — should be within a few years of other comparable sold homes. Mixed-age subdivisions are common. For example, in one area of Sacramento, a subdivision consists of homes built in the 1950s, and then they jump a couple decades to the 1970s. Although the homes are located next door to each other, the homes loaded with character from the 1950s sell for more than their newer Brady Bunch counterparts. If your home was built in 1980, say, and brand new homes up the street are selling for more, you cannot command the same price as a new home.
  • Similar amenities, upgrades, and condition Appraisers will deduct value from your home if other homes have upgrades and yours does not. A home with a swimming pool will have a different value than a home without a pool. Pools aren’t worth as much as you think. A completely remodeled home is worth more than a fixer. Homes with one bath are worth less than homes with two or more baths. Deferred maintenance will count against you.
  • Location Everybody knows that real estate is valued on “location, location, location,” but have you considered what that means? A home with a view of the city, for example, is worth more than a home facing a cement wall. Homes located on busy thoroughfares are worth considerably less than homes on quiet streets. Compare your home to those in similar locations. If your home sits across the street from a power plant, look for other homes with power plant exposure or those located along railroad tracks, among other undesirable locations.