Comparative Market Analysis (CMA): What It Means and How to Do One

A comparative market analysis (CMA) is an essential tool in real estate that helps estimate a property's value by comparing it with similar properties in the area. Understanding how to conduct a CMA can significantly impact the success of property transactions, whether you're a buyer, seller, or real estate professional.

As real estate experts, we are here to guide you through the nuances and specificities of the process, ensuring you understand all about CMAs and have the tools to do our own.

What is a Comparative Market Analysis?

A comparative market analysis (CMA) is a report that estimates a property's market value by comparing it to similar properties that have recently sold in the area. It provides insights into how a specific property compares to others in terms of size, location, condition, and features.

A CMA report typically includes:

• Subject Property Details: Information about the property being evaluated, such as its size, age, condition, and location.
• Comparable Properties (Comps): Recent sales of similar properties in the same area.
• Adjustments: Differences between the subject property and comparables are adjusted to align values.
• Market Trends: An analysis of local real estate trends affecting property value.
• Recommended Listing Price: An estimated price based on comparable sales and market trends.

What is the Purpose of a CMA

The primary purpose of a CMA is to help buyers and sellers determine a realistic listing or offer price. Real estate agents use this tool to guide their clients in pricing properties competitively.

Methodology and Cost

A CMA is typically prepared by real estate agents or brokers who analyze recently sold properties, current listings, and market trends to establish a property's value. Most agents provide CMAs for free as part of their service if you plan to list your property with them.

How to Get a Comparative Market Analysis

A CMA is usually provided by a real estate agent or a broker but there are other ways to obtain it:

1. Contact a Real Estate Agent:
   Most agents provide a CMA for free if you consider listing your property with them. Choose an agent experienced in your local market for the most accurate analysis.
2. Use Online Tools:
   Some websites offer automated CMA reports based on your property information.
3. DIY Approach:
   Access recent sales data through public records or Multiple Listing Service (MLS) databases.

How to Perform a Comparative Market Analysis (CMA)

Creating a CMA involves collecting data, analyzing comparable properties, and adjusting values to align with the subject property. Here’s a step-by-step guide:

Step 1: Do Your Research and Gather Your Data

The first step is to gather all the information about the property you want to evaluate and other similar properties. You should become an expert on every detail of the subject property. Here’s what you’ll need:

Subject Property Details:

• Location: Address, neighborhood, and school district.
• Square Footage: Total living space, including the number of floors.
• Age: Year the property was built and significant renovation dates.
• Lot Size: Acreage or square footage of the lot.
• Bedrooms/Bathrooms: Number and types (e.g., full, half).
• Features and Amenities: Garage space, swimming pool, deck, finished basement, recent renovations, etc.

Neighborhood Insights:

• School District Quality: School rankings and performance scores.
• Nearby Amenities: Shopping centers, parks, restaurants, and entertainment venues.
• Transportation Options: Access to highways, public transport, bike lanes, and walking trails.
• Crime Rates: Crime statistics in the neighborhood.

Step 2: Find Comparable Properties (Comps)

The next step into creating a CMA requires selecting comparable properties according to specific criteria, such as:

Location: 
Choose properties within the same neighborhood, subdivision, and school district as the subject property. Ideally, they should be within a 1-mile radius, but the closer, the better.

Sale Date: 
Look for properties sold within the last 3-6 months. In a rapidly changing market, limit the timeframe to the last few weeks. In slower markets, up to 12 months may be acceptable.

Property Features:

• Size and Age: Comparable square footage and age range.
• Bedrooms/Bathrooms: Similar number and types of bedrooms/bathrooms.
• Lot Size: Comparable acreage or lot square footage.
• Architectural Style: Similar architectural styles like ranch, colonial, and bungalow.
• Condition: Recent renovations or the condition of key elements like the roof, HVAC system, and windows.

Where to Find Comparables:

• Multiple Listing Service (MLS): Best source for accurate, up-to-date information.
• Public Property Records: Local government databases often include sale prices.
• Online Real Estate Websites: Sites like Zillow, Realtor.com, Redfin, and PropertyShark.

Step 3: Analyze Comparable Sales

After finding comparables, the next step is to analyze them by identifying key differences and adjusting comparable prices based on those differences.

Identify Key Differences:
Evaluate differences in features like square footage, number of bedrooms/bathrooms, and lot size. 
Also, consider additional features like:

• Finished Basements/Attics: Extra living space that adds value.
• Garages: Attached/detached garages or carports.
• Outdoor Amenities: Pools, decks, and patios.

Adjust Comparable Prices:
Increase or decrease the comparable property's value based on differences. For instance:

• Extra Bathroom: If a comparable property has an additional bathroom worth $5,000, subtract $5,000 from its sale price to align it with the subject property.
• Finished Basement: Adjust for the additional living space.

Step 4: Calculate the Adjusted Value

The fourth step into a CMA report is calculating the adjusted value. This takes into consideration all the houses analyzed in the previous step. It can be particularly challenging for first-timers, so we’ve broken down the process for better understanding:

Determine Average Adjusted Value:
Add up all adjusted prices and divide by the number of comparable properties. The resulting value will give you an estimated market price for the subject property.

Example Calculation:
Subject Property: 3-bedroom, 2-bathroom house, 1,800 sq. ft.

Comparable Sales:

1. Comp 1:
   3-bedroom, 2-bathroom, 1,750 sq. ft.
   Sale Price: $300,000
   Adjusted Price: +$5,000 (additional square footage)
2. Comp 2:
   3-bedroom, 2-bathroom, 1,850 sq. ft.
   Sale Price: $320,000
   Adjusted Price: +$10,000 (additional square footage)
3. Comp 3:
   4-bedroom, 2-bathroom, 1,900 sq. ft.
   Sale Price: $340,000
   Adjusted Price: +$20,000 (extra bedroom)

Estimated Value:
Adjusted Prices: $305,000, $310,000, $320,000.
Average Adjusted Value: ($305,000 + $310,000 + $320,000) / 3 = $311,667.

Step 5: Review Market Trends

Not only adjusted prices for specific homes are considered on the report but also local market trends and price fluctuations that determine adjustments on the recommended listing price accordingly.
Some of the Market Trend Factors to be considered:

• Rising/Falling Prices: Adjust prices upward in a seller’s market or downward in a buyer’s market.
• Seasonal Trends: Market activity often fluctuates seasonally.
• Economic Indicators: Local employment rates, interest rates, and inflation.

Step 6: Set a Final Estimated Property Value

Now that you have all the necessary data, the final step is to set the final estimated property value and the CMA is completed.

Comparative Market Analysis vs. Appraisal

A CMA and an appraisal both estimate a property's value, but they differ in purpose, methodology, and who prepares them.

Comparative Market Analysis (CMA)

A CMA helps buyers and sellers determine a realistic listing or offer price. It is typically prepared by real estate agents or brokers who analyze recently sold properties, current listings, and market trends. Often, CMAs are provided for free or included in an agent's services.

Appraisal

An appraisal establishes a property's value for lending, taxation, or legal purposes. It is prepared by a licensed or certified appraiser who conducts an in-depth analysis, including a physical inspection, neighborhood evaluation, and market trends. The cost of a home appraisal typically ranges from $300 to $600.

Given all the information above, the key differences between a CMA and home appraisal are:

1. Legal Requirement: Lenders often require an appraisal for financing, but a CMA is not legally required.
2. Accuracy: An appraisal is more comprehensive, making it generally more accurate than a CMA.
3. Intended Audience: CMAs are tailored for buyers and sellers, while appraisals are used by lenders and tax authorities.

CMA vs. AVM (Automated Valuation Model)

Another way of  estimating property values is what is called an AVM – Automated Valuation Model. It is a computer-generated model that uses algorithms and statistical models to analyze extensive data sets. 

AVMs rely on public records, MLS data, and other standardized property information to provide broad value ranges quickly. While AVMs offer fast results and are widely used by lenders, insurers, and investors, they lack the customization and accuracy provided by a CMA. 

Ultimately, the main difference lies in human expertise and local knowledge with CMAs versus the automated, standardized approach of AVMs.

Comparative Marketing Analysis FAQs

How to Get a Comparative Market Analysis?

Contact a local real estate agent or broker experienced in your area. Many agents provide CMAs for free to prospective clients. Alternatively, use online tools like Zillow’s Zestimate for automated estimates.

Why Would You Do a Comparative Market Analysis?

A CMA serves different purposes, depending if you’re a seller, a buyer or a real estate agent:

• Sellers: To set a realistic listing price.
• Buyers: To determine if a property is fairly priced.
• Agents: To advise clients on pricing and negotiation strategies

What is the Cost of a Comparative Market Analysis?

A CMA is usually provided for free by real estate agents if you plan to list your property with them. Some agents may charge a fee if you request a CMA without committing to their services.

How Long Does It Take to Prepare a Comparative Market Analysis?

A CMA can take anywhere from a few hours to a couple of days to prepare, depending on the agent's access to data and the complexity of the property. A CMA involving unique or luxury properties may require more time.

How Accurate is a Comparative Market Analysis?

The accuracy of a CMA largely depends on the quality of comparable properties (comps) selected and the expertise of the real estate agent. When prepared meticulously, a CMA can be highly accurate and closely reflect the market value of a property. However, it may not be as precise as an appraisal.

Comparative Market Analysis Template

While many people rely on real estate agents or brokers to create CMAs, it's entirely possible to conduct one yourself with the right guidance.

To help you get started, we've provided a free, easy-to-use CMA template. Whether you're a homeowner, investor, or aspiring agent, this template will empower you to create a detailed CMA, providing accurate and valuable insights into your property's market value. Enjoy!