A Beginner-Friendly Guide to Creating Your Comparative Market Analysis
A comparative market analysis, or CMA for short, is one of the most important documents you'll create and use as a real estate agent.
As a new agent, it can be tough to create your first few CMAs. Plus, there’s a lot riding on it. Your potential seller client may decide against going with you if your CMA seems inaccurate or incomplete. But don’t worry. We’ll show you how to prepare a solid CMA that wins client confidence and proves you know what you’re talking about.
Let’s get started.
A CMA is not an appraisal. (A real estate appraisal is a legal document that can only be prepared by a licensed appraiser.)
Instead, your CMA is a subjective document that you prepare for clients to give them insight into how much their home is worth.
This document compares a seller's home with other, similar homes in a specific area. This comparison allows you, as the seller's agent, to estimate the value of a home based on current conditions. You'll use the CMA to guide the seller to the ideal listing pricing for their home.
CMAs can also be used by buyers who wish to make a competitive offer based on recent market activity.
A CMA will take under consideration many factors when evaluating a property's value. The most important factors include the location of the property, its square footage, when it was built, and the current condition. It will also factor in recent renovations and upgrades to the home's interior or exterior.
Every CMA has an expiration date. They’re only good for approximately three to six months. That’s because markets change and what may have sold for $300K last year may sell for $30K more or less this year. Everything from federal interest rates to a new employer that’s moved into the area can affect home prices. As we reported in this post, the COVID-19 pandemic led to a 9.1% spike in home prices in 2020 .
A comparative market analysis is always the next step after your initial meeting with a client, but it can be used as a lead magnet where you offer a free CMA as a way to attract potential seller clients.
How Do You Conduct a Comparative Market Analysis?
Now that you know what a CMA is, let’s discuss how to create one.
Learn everything you can about a listing before you start comparing it to others in the area. By spending time on this part, and learning a property inside and out, you'll save a lot of time when finding comparables (also known as “comps”).
When you're first starting out, it may be easiest to create and use a template for internal use. You can use this template for reviewing both the listing and the comparables. In your template, you'll record the following:
It may also be useful to add a photo of the home for reference.
You can create a CMA template for internal use on Excel or Google Sheets. To create a CMA that you'll share with your client, we recommend using a professionally-designed template. This way, you'll give off a good first impression right away. You can find editable CMA templates for affordable prices on Etsy or, if you're artistically inclined, you can create your own.
Here’s a free template you can use to record the key data points for your subject and comparable properties.
It's important to analyze the area. What are the neighborhood amenities? What is the general vibe of the area? Is it up and coming? Is it established? Is it located near important landmarks or local attractions? Is there a homeowners' association (HOA) and what are the rules?
The next step is to find comparables for the property. Ideally, the comparable properties should be located within the same neighborhood and be as similar as possible to your subject. Evaluate the properties carefully. Choose properties that match style, square footage, and condition. If you're comparing against a property that has more square footage, you'll need to adjust your calculations accordingly.
So, how do you find comps for a specific property? Use the MLS. Log into your local MLS. Next, search for your property. From there, draw a half mile radius around your property, so that it is in the center of the circle. From here, you can refine the search even further. For example, you can isolate your search by:
The goal is to find between 5 to 10 comparable properties. Of course, you don't need to share all of these comparables with your client, but it can be useful for you when it comes to recommending an ideal price.
After building a list of comparables, it's time to find out the average price per square foot for your comps. This will help you determine the right listing price for your subject property.
To calculate the price per square foot, divide the price of the home by the square footage.
The next step is to find the average price per square foot for all of your comparables. To do that, add together each comparable property's price per square foot and then divide by the number of comparables. For example, if you have:
Next, add the square footage and divide:
$170 + $167 + $178 + $157 + $161 = $833
$833 / 5 = $166 (the average price per square foot for homes in the area).
Then you take that total ($166 in this example) and multiply it by your subject property’s square footage to get a good estimate for the perfect listing price (ex. $166 x 1950 = $323,700). You can add to or subtract from this number based on amenities, renovations, or other considerations that may rise or lower your property’s value.
In addition to using the MLS, here are a few other tools you can use when researching a property and searching for comparables:
Realtors Property Resource® (RPR) - If you're a REALTOR®, then you're in luck. This is a property database that's available to National Association of REALTORS (NAR) members. You can use this tool to generate property reports.
Zillow Zestimate - Zillow is an easy to use tool for getting a quick overview of properties, but don't rely on it completely when finding your comps.
We hope you feel empowered to conduct your own CMA. Creating your first few CMAs can be intimidating, but it does get easier as you go.
Be sure to check out these related resources, too:
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