You understand the true market value of the home because you've conducted every bit of research you could on the subject property and its active market competition.
So, how do you do a comparative market analysis?
Here's everything you need to know in 10 minutes or less.
What is a comparative market analysis (CMA)?
A comparative market analysis (CMA) is an invaluable tool real estate agents use to estimate a home's fair market price by comparing the sale prices of homes in the area.
It takes various comps into account, such as:
- Square footage
- Number of beds/baths
- Property age
+ tens of other unique pricing criteria
After cross-examining homes recently sold in the same area, agents arrive at a ballpark measure of true market value for the property.
Comparative Market Analyses are essential in making price-competitive offers. It keeps you from overpaying or undervaluing.
CMAs provide insight into your home-selling process. Paralleling your home's features and USPs with comparable properties reveals:
- Average selling price versus the asking price
- How long similar homes were on the market
- A summary of similar home's features, renovations, etc
It does not account for behind-the-scenes wins, buyer and seller motivation, staging expertise, and multiple other factors that play a viable role in market success.
Can a CMA be used for lead generation?
Without a doubt, a high-quality CMA is a shoe-in for potential clients. Consider it your chance at a possibly-converting first impression.
Tons of real estate professionals offer a free CMA as one of their competitive offers, so yours needs to edge up.
Consider offering a bonus addition, such as a moving guide or record the CMA on screen capture so your clients get a personable feel of the process. Provide the maximum value you can for free, without exhausting employee resources and neglecting other leads.
Discuss the average days on the market for similar homes, a fair market price range, and price adjustments between listing and selling prices. Get detailed and specific to the core of the buyer/sellers needs and wants. Read on to discover makes a "free CMA" an amazing offer, rather than just a free toss-out.
It's all about building the community, providing upfront value reflects what a long-term relationship would be like with your business. Brick by brick, free CMA by free CMA, you're showing your customers that working with you is the best value for their money.
Curaytor gets small business in front of large audiences with personalized coaching. Many of our small business clients more than doubled their conversions, and have become a widely-recognized, trustworthy name in their area's market.
How to do a comparative market analysis (step-by-step)
Not all agents are CMA-savvy, so sharpening your skills could score you more listings. Keep in mind, a comparative market analysis is not only for your research, your client needs to understand it as well.
Don't overcomplicate it.
The way to more listings is through building trust in your client base. Make advanced concepts publicly consumable, and you'll have returning customers.
Clients want to make the best decision possible for their property given current market conditions. They're relying on your market knowledge for an estimated fair market price.
Also, not all houses are created equal. Agents invest more time running CMA filters when homes are categorized as fixer-uppers, in a state of remodel, or in rural areas.
Let's run through how to do an average comparative market analysis.
1. Find out as much information about the property
Pretend as though you're a scientist, collecting DNA on an unknown patient. You need to understand the A-Z of this being's genetic makeup to give a diagnosis.
Pricing a home is no different.
Gather all possible information about the subject property, then start asking detailed questions. We need to know as much as we can about the subject property to make the most accurate comparisons.
Collect the following data:
- Floor plan: square footage, number of beds, number of baths, special features
- Location: school zone, crime rates, street demographics, municipality, amenities
- Condition of property: renovations, needed maintenance, year built
- MLS details: taxes, how many times the property has been listed, when the property was last on the market, millage rate
What's the subject property's curb appeal? Is it a diamond or it is rough?
2. Visit the property in person
You've collected the DNA, now it's time to test your sample.
Do a walkthrough of the subject property and form a list of desirable features, upgrades, and valuable selling points.
It's vital to factor in everything you know about the property to estimate an accurate listing price.
From here you'll cross-evaluate the subject property with similar homes for price recommendations.
3. Analyze the history of sales and listing activity
Form a pricing strategy. Compile all information on the previous sales prices, listing prices, and adjusted prices.
When was the home listed last? For what adjusted sales price?
Lest remind you, unsold property data is just as important.
In the fast-moving markets, we need all the information available to arrive at a fair asking price.
4. Understand everything about your comps
Comps are similar properties that match multiple criteria to the property in question. Most experienced agents analyze between 5 to 10 comps sold within the last year. Transactions 12 months prior do not reflect the active market.
Solid comps are:
- Within your current competition area, near your subject property
- Sold within the last year (preferably 6 months in fast-moving markets)
- Properties that match various factors in their CMA report
- Homes that sold in a reasonable time span
- Active listings matching the wealth of subject property data
5. Figure out an average sale price
The basic way to estimate a vague sale price range is to determine the price per square foot for your five comps.
This is done by dividing the sales price by the square footage. For example:
Comp 1: $600,000 sale price / 3,100 sq ft. = $193 per square foot
Comp 2: $550,000 sale price / 2,700 sq ft.= $208 per square foot
Comp 3: $625,000 sale price / 3,650 sq ft. = $171 per square foot
Here you arrive at median prices of around $190 per square foot.
Now, come to an agreement on prices for renovations, special features, and unique selling points.
6. Preparing your CMA report
Before your CMA report reaches your client's eyes, dress it up.
Pull out relevant information and key takeaways and spice it up in a PDF, presentation, or template. If you're confused, they'll be confused-- keep it clean and organized.
It should highlight:
- Recently sold homes in the area
- High fair market value, correct listing price, low fair price value
- Listing tips for the subject property
How reliable are CMAs?
Comparative Market Analyses are only as accurate as their current real estate market data. If no comparable homes have sold in the area recently, it will be impossible to price the subject property accurately.
No reason to panic, there are countless tools and services to help with this issue.
What's the difference between a CMA and an appraisal?
Real estate appraisers usually work under lenders to verify the value of a property. These appraisals can be used in purchasing agreements, and are legally required for any real estate agreements needing financing.
Should you offer a comparative market analysis for free?
No, you shouldn't.
"But it could get me more listings!"
Sure it could if you do a decent job at it; this requires valuable employee resources and time.
Nowadays, people associate "free" with lacking value. How could such an asset to pricing a home be free?
Instead, go above and beyond when people request a CMA, proving its value and your expertise in the field. It will garner respect, and your clients will trust you more when you provide high-quality, research-backed pricing details about their property.