Comparative Market Analysis (CMA)

Definition

A Comparative Market Analysis (CMA) is a method used by real estate agents to estimate the current market value of a property by comparing it to similar properties that have recently sold, are currently for sale, or did not sell in the same area. The goal of a CMA is to help sellers set listing prices that are competitive and realistic, and to assist buyers in making informed offers.

Key Aspects of a Comparative Market Analysis:

Property Comparables: Evaluation of similar properties (comps) in proximity, considering factors like size, condition, location, and features.
Market Trends: Analysis of recent real estate market trends which influence property values.
Adjustments: Making necessary adjustments for differences between the subject property and the comparables.
Pricing Recommendations: Providing an estimated price range where the property is likely to sell.

Examples

Residential Property in Suburban Area:
- A real estate agent analyzes three to five recently sold homes in a suburban neighborhood to estimate the value of a 3-bedroom, 2-bathroom house.
- The homes vary slightly in terms of square footage and upgrades, but are largely comparable.
- The agent makes adjustments for unique features such as a swimming pool or new roofing.
Commercial Property in Urban Location:
- To evaluate a small office building, an agent examines recently sold office spaces in the same district.
- Factors like building age, square footage, accessibility, and current market demand are taken into account.

Frequently Asked Questions

Q: What is the difference between a Comparative Market Analysis (CMA) and an appraisal? A: A CMA is typically performed by a real estate agent to estimate market value based on local comparables, whereas an appraisal is conducted by a licensed appraiser and involves a more formal, detailed assessment required by lenders for mortgage purposes.

Q: How accurate is a CMA? A: The accuracy of a CMA depends on the agent’s knowledge of the market, the quality of the comparables used, and the validity of the adjustments made. While a CMA provides an informed estimate, market dynamics can still cause variances in actual sale prices.

Q: Who uses a Comparative Market Analysis? A: Real estate agents, buyers, and sellers use CMAs. Sellers use them to set listing prices, and buyers use them to make informed offers. Agents utilize CMAs to provide professional guidance and competitive market insights to their clients.

Q: How long does a CMA take to complete? A: Preparing a CMA can take anywhere from a few hours to a couple of days, depending on market complexity and the availability of relevant data.

Q: Can I do a CMA myself? A: While homeowners can access certain data online and attempt a CMA, the expertise and local market knowledge of a real estate agent often make professional CMAs more comprehensive and reliable.

Appraisal: A formal assessment performed by a licensed appraiser to determine a property’s market value.
Fair Market Value: The price at which a property would sell under normal market conditions.
Listing Price: The price at which a property is advertised for sale.
Market Conditions: The current trends and economic factors that influence the real estate market.
Price Adjustment: Modifications made to the comparable properties’ values to account for differences in features, location, and market conditions.

Online Resources

References

National Association of Realtors. “Real Estate Agent’s Field Guide: Comparative Market Analyses.”
Zillow Research. “Understanding Comparative Market Analysis.”
Stevens, John. “Property Valuation Techniques”, 4th Edition, Real Estate Press.

Suggested Books for Further Studies

“The Art of Real Estate” by Gary Keller
“Real Estate Market Analysis: Methods and Applications” by John M. Clapp and Stephen D. Messner
“Real Estate Valuation and Market Analysis” by Seth Werth (Real Estate Professional Series)

Real Estate Basics: Comparative Market Analysis (CMA) Fundamentals Quiz

### What is the primary purpose of a Comparative Market Analysis (CMA)? - [x] To estimate the current market value of a property. - [ ] To provide detailed architectural plans. - [ ] To list the property insurance options. - [ ] To check for building code compliance. > **Explanation:** A CMA is used primarily to estimate the current market value of a property by comparing it to similar properties that have recently sold or are for sale. ### Which professional commonly performs a CMA? - [x] A real estate agent - [ ] A licensed appraiser - [ ] A civil engineer - [ ] A building inspector > **Explanation:** Real estate agents typically perform CMAs to help clients determine competitive listing prices or offers. ### Comparative Market Analysis (CMA) takes into consideration which of the following factors? - [x] Recently sold properties in the area - [ ] Historical landmark status - [ ] Annual property tax assessments - [ ] Property insurance premiums > **Explanation:** A CMA considers recently sold properties in the area (comparables) to estimate the market value of the subject property. ### What is a significant difference between a CMA and an appraisal? - [x] A CMA is usually done by a real estate agent, whereas an appraisal is done by a licensed appraiser. - [ ] A CMA gives a more formal value than an appraisal. - [ ] Appraisals do not require analysis of comparable properties. - [ ] A CMA is used by lenders to determine loan amounts, whereas appraisals are not. > **Explanation:** The primary difference lies in who conducts them; a CMA is typically performed by a real estate agent, while an appraisal is done by a licensed appraiser and involves a more thorough, formal assessment. ### Up to how many similar properties should be typically considered in a CMA for it to be effective? - [ ] Only one or two similarly priced properties. - [x] At least three to five comparable properties. - [ ] More than ten diverse properties. - [ ] Any number of properties regardless of similarity. > **Explanation:** For a CMA to be effective, at least three to five recently sold comparable properties are typically analyzed to derive a reliable market valuation. ### Can you accurately complete a CMA without local market knowledge? - [ ] Yes, online tools are sufficient. - [ ] Mostly, as long as you know the basics of evaluation. - [ ] Sometimes, if the market is straightforward. - [x] No, local market knowledge significantly enhances accuracy. > **Explanation:** Local market knowledge is crucial for accuracy in completing a CMA, as it includes understanding market trends and specific neighborhood factors. ### Which of the following is NOT typically adjusted in a CMA? - [ ] Size and square footage of the property - [ ] Location and proximity to amenities - [ ] Unique features such as a pool - [x] Building permit history > **Explanation:** Building permit history is typically not adjusted in a CMA. Adjustments are mainly made for size, location, and unique features. ### What is an essential element in the completion time for a CMA? - [x] Market complexity and data availability - [ ] The time of year the analysis is conducted - [ ] The average occupancy rate in the neighborhood - [ ] None of the above > **Explanation:** The completion time for a CMA largely depends on the market complexity and the availability of relevant data to make informed comparisons. ### How does a CMA benefit real estate buyers? - [ ] It helps obtain property insurance. - [x] It assists in making informed offers by estimating fair market value. - [ ] It pre-qualifies them for a mortgage. - [ ] It ensures a property's structural integrity. > **Explanation:** A CMA assists buyers in making informed offers by providing an estimate of the fair market value based on comparable properties. ### When might a CMA need to be updated? - [ ] Only if the agent wants to revise it. - [ ] Every two to three months, regardless of market changes. - [x] When market conditions change significantly. - [ ] Rarely, since property values are stable. > **Explanation:** A CMA may need to be updated when market conditions change significantly to reflect the most accurate and current market valuation.