If you're doing a comparative market analysis (CMA), it's most likely for one of two common reasons. You either want to determine a listing price, or you want to check the market value of a property that you or a client is considering buying. Accuracy and a reasonable current market value should result from your calculations in either case.
CMAs aren't just for listing agents. They provide a useful tool to buyers' agents as well, helping them guide their clients to realistic offers on a given property.
The Components of a CMA
A CMA is a vital component of any real estate listing or offer. It provides the most accurate snapshot of the value and potential sales price of a property, other than an appraisal. You're comparing the property to others that have actually sold—the more recently the better.
Comparing to other listing prices rather than the actual one can be like measuring one pipe dream against another. You have no way of knowing whether those prices are realistic and in the right ballpark, or if a cantankerous owner just won't settle for less.
The process of creating a CMA is similar to that of an appraisal, but the latter can only be performed by a licensed real estate appraiser. Homeowners can do their own CMAs to get a pretty firm idea of what their homes are worth.
First, you have a subject property with features and characteristics. Now locate the three best comparable properties and record their details and sold prices.
Make adjustments to the sold prices for differences between them and the subject property.
The market value of the subject property is calculated from adjusted sold comparable prices.
Selecting Comparable Properties
A trustworthy CMA isn't rocket science, but it requires that you select your comparable properties carefully.
They should be as nearby to each other as possible, ideally in the same neighborhood. They should be current sales, preferably within the last several weeks. They should exhibit features and characteristics as close to those of your subject property as possible.
Achieving all this will typically result in a CMA that you can rely upon.
Common Elements to Enter in All CMAs
Organize this information into a spreadsheet:
- The addresses of the subject and the comparable properties appear in the first row.
- Enter information about the properties and their characteristics, including the sold prices of the comparable properties, in the next four rows.
- Dedicate a row to the square footage of each home.
- Enter adjustment values for the years of construction, lot size, bedrooms, baths, garage spaces, recent renovations, and exceptional exterior features, such as a pool. These go in the last column.
- All rows below the "Sold Price" row are calculated by the sheet for you.
- The adjusted comparable sold prices are in the next to the last row, broken down into dollars per square foot below that.
- The "Subject Value" is the calculated market value of the subject property arrived at by multiplying the average of the adjusted square footage sold dollars by the square footage of the subject property.
Most of what you'll have to fill in is hard data about each of the properties. The only place where you'll probably have to interpret and get subjective is in that last column for adjustment values.
You're assigning the value of each of the items for your comparable sold price adjustments here. In other words, what's a bedroom worth if our comp property has more or fewer bedrooms than our subject property?
Subtract some dollars from its sold price to adjust it downward to be more comparable to your subject property if it has more bedrooms. Baths and garage spaces work the same. Baths can indicate half baths, with the subject property having 2.5 baths.
You can locate approximate values in dollars for each of these items at online sites about remodeling or by asking a local appraiser what values they use.
Try to come up with the approximate market value of a full acre of land for a lot size adjustment. The sheet will use square footage because most lots are less than an acre. But use the value of a full acre in the last column.
Use the lot size square footage for each property. Convert the acreage to square feet using 43,560 square feet per acre if one or more is larger than an acre.
This is meant to be a quick and reasonably accurate CMA calculation. You can also do a second one using currently listed properties and their list prices. This can help you determine if the market is changing if the prices are higher or lower so you can then make a judgment as to how to adjust your subject property market value.
Just remember that these figures are what others want for their properties. They're not necessarily what buyers are willing to pay.
This sheet works with three properties. You can't use just one or two comparable properties because the calculations will bomb, but you can add one or more columns just before the last one if you're good with spreadsheets and you'd like to use more comps. In fact, you can create several sheets with more or fewer comparable properties.