Comparative Market Analysis: A Homebuyer’s Guide

When you’re in the market for a new house, determining how much to offer can be a considerable challenge. In fact, how much a home is worth can seem fairly subjective, considering the very many aspects that go into determining it. But it’s crucial to note that pricing a home is a science, and that’s where a comparative market analysis (CMA) comes in. Keep reading to learn more. 

Key Takeaways:

  • A comparative market analysis gives you an estimate of a home’s value based on comparable homes that have sold in the neighborhood.
  • The CMA considers various aspects, including the home’s location, features, square footage, lot size, age, condition, and number of bathrooms and bedrooms. 
  • Your real estate agent will use the CMA report to help you make a competitive offer on the house you’re interested in. 

What’s a Comparative Market Analysis?

A comparative market analysis is a compilation of data that are used to estimate the value of a home for sale. The analysis is created by comparing the property you’re interested in to other similar properties in the area, in addition to several other aspects. A CMA can offer a general overview of the local market and a specific, informed estimate of the fair market value of a specific home, which you can then use to set a competitive price. 

What’s Included in a Real Estate CMA?

A CMA should include data points and descriptions for comparable homes that help inform the fair market value of the house being evaluated. The most accurate comparable homes are those generally sold within the past three months. However, in slower real estate markets or rural areas, it can be challenging to find recently sold comps. In such cases, the real estate agent can include homes sold within the last six months. Nonetheless, here are homes that’ll likely be omitted from a CMA:

  • Active Listings: Homes on the market can be mispriced, so there’s no way of knowing their true value until they’re sold.
  • Pending Listings: The same goes for the pending ones. They aren’t a good indicator of the home’s value since the transaction isn’t finalized yet. But if your agent could get the details on the contract price of the pending listing instead of the public asking price, then the house could be used as a comparable home.
  • Deactivated Listings: Since there’s no way to determine what a buyer would pay, your real estate agent will likely avoid properties pulled off the market. 

How Does a CMA Actually Work?

A CMA is basically your agent’s estimate of a home’s competitive market value based on what similar properties have recently sold in the neighborhood. These homes, also known as comparable sales or comps, are used to conduct a sales comparison approach to pricing. The strategy relies on the idea that you can figure out how much a home’s worth by identifying how much it’d cost to buy a similar home of equal desirability. 

  • The Rule of Three

The first step for a real estate agent preparing a comparative market analysis is to find three homes that have recently sold (ideally within 3 months, but can be within 6 months at most). These three homes should be as located closely together and similar as possible. 

Once the agent selects the three comps, they’ll thoroughly examine each of them to pinpoint how it differs from the home you’re interested in. They’ll then itemize and price out each difference, adjusting the price of each comparable home to determine how much it’d cost if it were nearly identical to the home you’re interested in and sold in the current real estate market conditions.

What Other Factors Contribute to a Comparative Market Analysis?

While completing a comparative market analysis can be complicated, it can be broken down into separate, manageable segments. These parts collectively give you a thorough value estimate. Here are some factors that contribute to the comparative market analysis:

Location

The ideal comps should be located within the same neighborhood as the home you’re interested in. But if there aren’t enough recent sales in the neighborhood to complete the CMA, your real estate agent will choose comps located in the area that’s considered similar in terms of quality of schools, noise level., crime rate, and proximity to amenities. 

Lot Size and Square Footage

The size of the property’s lot plays a crucial role in its market value. Differences in even half an acre can have a significant impact on the home’s price. Similarly, the larger the property, the more valuable it tends to be. As such, the extent of livable square footage is just as vital as the number of rooms in a home. For instance, the more bathrooms and bedrooms a house has, the higher its value will be. 

Age and Condition of the House

The year the home was built and whether it’s been upgraded recently affects its value. For instance, new constructions and houses built with high-end materials are typically considered more valuable (although historical homes that have been recently renovated can also have high purchasing prices). 

Special Features

Specialty amenities, such as patios, fireplaces, garages, swimming pools, and finished basements, are also taken into consideration. But it’s vital to keep in mind that depending on the local housing market, not all special features will be deemed as increasing the property’s value. 

Want to Learn More? Consult the Experts!

A comparative market analysis can help you create a competitive offer on your future home. But keep in mind that preparing a CMA is a complex process that requires access to complete sales data and knowledge of local and national housing markets. That’s why it’s crucial that it’s prepared by a licensed real estate agent. Our real estate professionals are highly trained and skilled in estimating home values. They can help you compile a comparative market analysis to create a winning offer on your dream home. So call us today, and let’s help you buy the home of your dreams!

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