What is a Comparative Market Analysis (CMA)?

What is CMA in Real Estate?

Comparative Market Analysis, which is commonly referred to as CMA, is a framework real estate agents use to estimate the price of a property by comparing them to other similar properties that were sold recently in the area. It is very difficult to estimate a fair value of a property due to unique features and costs associated with each property, so real estate agents need tools to approximate the prices of properties. CMA can be used by buyers to estimate a competitive offer and see if they can afford that, and sellers to price their property effectively. There are multiple factors that real estate agents look at, for approximating the price of a property. Major factors include lot size, square footage, location, and others.

The agents usually use the rule of three to conduct CMA. They try to find at least three comparable houses that have been sold within 3 to 6 months maximum. This rule allows the analysis to reflect the most recent market conditions and drop any outliers if there are any present. When the three comparable properties, also known as comps, are selected, the agent can make an extensive analysis to determine how different factors affect the price of the comparable properties and apply the analysis to the subject property.

CMA is not considered an official home appraisal. CMA is used by real estate agents to estimate the value of the house, which might differ from a house valuation that is conducted by real estate appraisers. Even though CMA is just an approximation of the value of the property, the analysis is a complex process that requires a lot of information and technical knowledge of market conditions and the effects of different housing factors on the value of a particular house.

An Example of CMA

Before jumping into the details of how to write Comparative Market Analysis, it might be helpful to look at an example of such an analysis. This simplified example may help a buyer or a seller to understand how to conduct the analysis. An individual is planning to sell a house for $500,000, and they would like to see if that price is in line with the prices of similar houses sold in the area. They contact their real estate agent to conduct a comparative market analysis to estimate the market value of the property, which is a subject property in this case.

The real estate agent starts gathering information about the subject property, and finds the following:

• The property is located in a development zone that has similar houses built at the same time.
• The house stands on a quarter-acre lot. It has 3 bedrooms, 2 bathrooms, and a car garage.
• The 1500 square foot house is in good condition. It has never been renovated because it does not require any major repairs.

After collecting this information, the agent starts looking for similar properties in the area. Luckily, there are many houses in the neighborhood that have been built in a similar style. The market for the houses in the area is also quite active, so the agent can find 3 similar properties that have been sold within the last 6 months. While the agent is gathering information, they also put all the information together in a comparative market analysis.

	Subject House	Comp 1	Comp 2	Comp 3
Price		$495,000	$525,000	$520,000
Date of Sale		2 months	4 months	6 months
Lot Size	0.25 acre	0.25 acre	0.3 acre	0.25 acre
Condition	Good	Fair	Good	Good
Bedrooms	3	3	3	4
Bathrooms	2	1.5	2	2.5
Garage	2 car	2 car	2 car	2 car
Square Footage	1500	1500	1500	1750

With a clear list of differences between the properties, the agent can research the estimated price differences for every category that needs to be adjusted. This research may include contacting contractors, estimating the price of land and the price of renovations needed for the properties that need to be renovated. After that, the agent can estimate how each of the differences affects the value of a property.

With these adjustment prices, the agent can estimate the adjusted value of each comparable and find an adjusted price per square foot. After that, the agent can insert the average adjusted price per square foot for the subject property, and calculate the approximate value of the property by multiplying the price per square foot by square feet of the subject property.

	Subject House	Comp 1	Comp 2	Comp 3
Price		$495,000	$525,000	$520,000
Date of Sale		2 months	4 months	6 months
Lot Size	0.25 acre	0.25 acre	0.3 acre (-1,000)	0.25 acre
Condition	Good	Fair (15,000)	Good	Good
Bedrooms	3	3	3	4 (-5,500)
Bathrooms	2	1.5 (2,000)	2	2.5
Garage	2 car	2 car	2 car	2 car
Square Footage	1500	1500	1500	1750

What Does CMA Report Include?

CMA is a detailed analysis of a subject property, and it is based on similar properties recently sold in the same area. When a real estate agent finishes the analysis, the agent has to present it in a clean and understandable format. There are many details to be discussed in the report by the person who conducts the analysis, and these details usually include:

• Location of The Subject Property And Its Comparables.

  The first section of the report reveals the addresses of the subject property and the comparable properties. The best comps are located in the same neighborhood as the subject property, but it might not be the case all the time especially if the housing market in the area is not very active. In this case, the agent might choose similar houses in similar neighborhoods that have a similar number of schools, level of income, crime rate, noise pollution, and other factors.

• Size of The Lot

  The size of the lot of the subject house has a considerable influence on the price of the house. The higher the price of land, the more effect on price the size of the lot will have. In cities like New York and Los Angeles, even unmaintained and old properties may cost hundreds of thousands of dollars due to the prices of land in that area.

• Square Footage

  Generally, the larger the house, the more expensive it tends to be if the land value is fixed. Even though square footage affects the price of the house, the complexity of the property may increase the price per square foot. For example, a 3 story house may be more expensive than a single-level house with the same number of square feet due to the complexity of the construction.

• Age And Condition of The Property

  The age and overall condition of the property is also a very important metric in the analysis. The year it was built and whether it was recently renovated play an important role to estimate the value of the house. Generally, older houses that have not been renovated for a long time tend to be cheaper holding everything else equal.

• Number of Bedrooms And Bathrooms

  The most important spaces in the house are bedrooms and bathrooms, so the number of those affects the value of the house much more than the number of rooms in total. As a rule of thumb, the higher the number of bedrooms and bathrooms, the higher the value of the house.

• Price And Date of Sale of The Coms

  The Comparative Market Analysis is based on the prices of the properties sold in the recent past. The prices and dates of the sales of comparable houses must be included in the analysis to provide a useful insight into how the subject house has been evaluated.

• Suggested Market Value For The Subject House

  The last and most important part of the analysis is the estimated market value of the subject property. Approximation of the value of the property is the objective of the analysis, so it must be included and presented in the report.

CMA Step-by-Step Guide

Even though CMA requires some technical knowledge and understanding of the real estate market in the area, it is possible to analyze the subject property without asking a real estate agent to do it. Below, there is a step-by-step process and tips on how to conduct such analysis to approximate the value of subject property. This is a simple process for the properties that have similar comparables and do not deviate largely from the comparables:

1. Get Information on Subject Property

   Before starting the research process, it is important to identify the metrics for the subject property. The metrics can be found through an MLS service where the property is listed. If the property is not listed, then it can be done manually through assessing the property, pulling up the documentation, or using websites that record house sales in the area and finding the most recent sale of the subject property.

2. Find Comparable Properties

   After the features of the subject property are organized, it is possible to look for comparable properties. The task is to find the properties that have similar characteristics to the subject property. These characteristics may include the location, size of the lot, square footage of the property, age and condition of the property, and anything else that has been mentioned above. It is impossible to find the perfect match, so sometimes an analyst has to focus on some characteristics more than on the other. It might be tricky to obtain recent sale prices through MLS without a licensed real estate agent, but some websites may provide some information depending on the state the subject property is in.

3. Widen the Search if There Are Not Enough Results

   If the search does not yield at least 3 sufficient comparables, it might be wise to widen the search to have a stronger base to estimating the price of the subject property. The best approach is to start with widening the following parameters:

   • Square Footage
   • Age
   • Listing Date
   • Location

   If the research still does not yield any meaningful results, then a person could try and widen the other parameters. It has to be done with caution because the larger the deviation of comparables, the larger the room for making an error.

4. Analyze the Comparables

   The research part is over, and now the task is to summarize the comparables picked. The summary can be represented in a table, and it should outline the metrics for every property. This way, it is easier to see the similarities and differences between the comps. With a clear list of differences, the agent may contact contractors to estimate the value-added for the categories that do not have a clear value-added. The table should include the following:

   • Price
   • Date of Sale
   • Lot Size
   • Square Footage
   • Number of Bedrooms
   • Number of Bathrooms
   • Garage
   • Condition
   • Age
   • Basement
   • Other Features
5. Adjust For Differences

   It is important to note that some of the values may deviate from the comparables, for example, the number of bathrooms. After the values are approximated, it is possible to adjust for differences between the subject property and the comps. An experienced real estate agent may be able to assign a dollar value for each of the categories after adjustments. The adjustments may be made to both, the comparables and the subject house. An example of an adjustment is if the subject property has an extra bathroom, then a positive value adjustment needs to be made to a comparable with a lower number of bathrooms to account for the extra bathroom. After this adjustment, the value of the comparable can reflect the value of the subject property more precisely.

6. Determine The Price Per Square Foot After Adjustments

   The last step in the analysis is to determine the price per square foot of comparables and derive the value for the subject property. After adjusting for the differences between the comparables and the subject property, the adjusted sale prices of comps have to be divided by the square footage to determine the adjusted sale price per square foot. To determine the value of the subject property, simply find the average adjusted price of a square foot for the comps and multiply it by the number of square feet in the subject property. The approximate value for the subject property is found.