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How to Perform a Comparative Market Analysis in Real Estate

Editorial Team July 23, 2019 Comments Off on How to Perform a Comparative Market Analysis in Real Estate
How to Perform a Comparative Market Analysis in Real Estate

As a real estate agent, you’re tasked with helping your clients sell or buy a home at a fair price—quickly. The housing market changes fast and being prepared with a good offer or sensible listing price can make the difference between an expired listing and a closed deal.

That’s why whether you’re representing a buyer or seller, it’s important to be prepared with a solid comparative market analysis or CMA realtor report. Read on for our basic step-by-step guide on how to perform a comparative market analysis for real estate.

What’s Does CMA Mean?

CMA is short for comparative market analysis. Contrary to popular belief, it is not the same thing as an appraisal, which is an estimate of a property’s market value based on a variety of factors including location and condition. A comparative market analysis is a document that reports on the prices at which similar properties have been listed or sold.

How Can I Perform a CMA?

In real estate, like in life itself, there’s a first time for everything. The good thing is, if you’re looking for help putting together your first CMA, you’ve come to the right place!

1. Evaluate the neighborhood.

“Location is everything,” didn’t become a common saying for no reason. Even before you start looking at the property, check out the neighborhood. Make note of the essential pros and cons that can make an impact on its value.

For example, being close to noteworthy schools and having curb appeal might be a significant plus. On the other hand, a lack of reliable municipal services and having train tracks nearby may be value-lessening drawbacks.

2. Check out similar listings in the neighborhood.

Now it’s time to evaluate other listed properties in the area. Visit the neighborhood itself or go to different real estate websites to find homes that are comparable to the one you’re working on.

For example, if you’re the listing or selling agent for a 2 bedroom 1.5 bathroom home in the Alden Bridge subdivision of The Woodlands, TX—look for similar properties that are for sale or recently sold in the area (ideally, in the same or a similar subdivision). Pay special attention to recently sold or freshly posted listings, as these are the most relevant comparisons given the time-sensitive nature of housing markets.

Create a list of properties, their listing price, and their selling prices (if available). Note how they stack up to the property in question across different categories such as landscaping, square footage, age of construction, and even HOA standards!

3. Compare the most relevant listings for “minor” factors.

No factor is “minor” when it comes to what could be one of your clients’ biggest financial decisions. However, if you were to compare every single factor of each listing in the area to the one you’re working on, you’d never finish!

Pick two or three of the most comparable properties from the list you created in step two. Then, look for issues or features that may make them more or less valuable than the home you’re working on.

For example, some valuable features may be an oversized lot, stainless steel appliances, or a pool. On the flipside, value-decreasing issues include nearby foreclosures, unfinished renovations, and even messy neighbors.

4. Calculate the average price for your most suitable comps.

Use your most suitable comps’ selling (or listing) prices and divide each by the square footage. Keep in mind that listing prices tend to be higher than selling prices, so take the results for the former with a grain of salt.

Once you have the price per square foot (PPSF) for each comparable property, add them up and divide it by the number of comps to get the average price per square foot. Take the result and multiply it by the square footage of the property you’re working on.

For example, if you’re preparing a CMA report on a 2,000-square-foot townhome, and have four comps to benchmark it against:

  • Comp 1 is 1900 sq. ft. and sold for $200,000 (PPSF: $105.26)
  • Comp 2 is 2200 sq. ft and sold for $250,000 (PPSF: $113.63)
  • Comp 3 is 2000 sq. ft and sold for $190,000 (PPSF: $95.00)
  • Comp 4 is 2100 sq. ft and sold for $210,000 (PPSF: $100.00)

The average PPSF of your four comps is $103.46. If you multiply that average by your listing’s square footage, you get $206,945. If you’ve done your due diligence finding suitable comps, this should be a good ballpark estimate of the townhome’s market value.

5. Assess the listing one more time.

If the listing you’re running a CMA on has unique assets or drawbacks, such as the ones discussed above, you may have to raise or lower the price (or offer) in proportion to those attributes:

  • Necessary upgrades: outdated appliances, subpar plumbing, or worn roofing.
  • Amenities: gated community and walkability
  • Additions: swimming pool, landscaping, brick oven, and other attractive nuisances

6. Prepare your CMA for client delivery.

Once you’ve evaluated the comps and crunched some numbers, it’s time to show your clients all your hard work. Don’t let poor presentation detract from your effort, though!

Organize a clean and easy-to-read deck of slides and have a couple of copies printed and bound for your clients to look at. (Don’t forget to include your contact information on the last page, for referrals!) If you’re not confident in your slide-making skills, you can use professional CMA software to help you put the finishing touches on your report.

Go Beyond the CMA Report 

No amount of research or design skills can hide a lack of knowledge. The truth is, there’s more to being a realtor than knowing how to perform a comparative market analysis. You need to have an understanding of the local housing market, a commitment to the law of agency, and a real estate license too. Get all those things and more with one of 360training’s state-certified real estate continuing education courses.

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