What Is a Comparative Market Analysis (CMA) and How Is It Calculated?
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If you’re buying or selling a house, you’ve probably noticed that similar properties vary in price depending on the area. One of the factors used to set a price in real estate is the market — that is, the neighborhood, comparable properties nearby, and comparable features. And figures aren’t pulled from a hat or arbitrarily assessed; instead, a comparative market analysis (CMA) is completed.
What’s involved in a CMA report, how is it used, and how is the CMA calculated? Here’s what you need to know.
What Is a Comparative Market Analysis Used For?
Realtors perform a comparative market analysis to determine a fair market value for a property. It can be used by sellers to set a competitive price for their home, or by buyers to determine if a potential subject property is a good deal or not.
A CMA is unofficial, meaning that a real estate agent doesn’t need to be certified to complete appraisals in order to deliver a CMA report. Since each home is unique, a comparative analysis can vary depending on who is doing the report and how they view the home.
Information in a CMA Report
The CMA report factors in specific details to determine the home’s value. Criteria can include:
- The neighborhood. How close is the home to schools and community amenities? Is the neighborhood safe? Is the property near a highway? The quality of a neighborhood is a significant factor.
- Property details. How many square feet of living space does the home have? Is the basement finished? What type of construction is it, and how old is it? Does it have average, below-average, or above-average finishing? Landscape and condition also make a difference.
- Comparable homes. A CMA report typically compares the home to three to five other properties in the area that are in the same school district, of a similar age and size, and have the same type of construction and lot size. Because the real estate market fluctuates so much, the more recently the home was sold, the more accurate the comparison is.
- An adjustment for differences. For as much of an apples-to-apples comparison as possible, value adjustments are made to the comparable homes.
- Price per square foot. To know if a home represents good value, a comparison based on an adjusted square footage is calculated.
Is There an Alternative to a CMA Report?
Sometimes a CMA report can’t be accurate. This may be because the home has a custom design, or there is a slow housing market where similar homes nearby haven’t sold recently. Rural locations can also be difficult to price based on a CMA report.
One alternative to a CMA report is a broker price opinion (BPO). It’s less detailed and can be completed faster than a CMA report, which is perfect for a short sale or quick listing. However, a BPO can’t be used to secure a mortgage in most cases.
A second option is to commission an official property appraisal. This is a professional’s assessment of your property to determine its fair market value. It’s extremely detailed and looks at all visible facets of a home, including its roof, foundation, electrical system, plumbing, finishing, and condition. It also takes into consideration the neighborhood, lot, comparables, homeowners association (HOA) fees, property taxes, and more.
Typically you must pay home appraisal fees, which cost $315 to $405 on average. If you’re listing your home, your realtor will normally include a CMA or BPO free of charge.