Agent Blogs Comparative Market Analysis: A Real Estate Agent’s Guide by Alex Karani October 21, 2019October 14, 2019 by Alex Karani October 21, 2019October 14, 2019 When working with real estate clients, property valuation is usually the first step for real estate agents. If you are working with property sellers, you will need to assess the value of their house to set the listing price. When working with property buyers, knowing the house value is crucial in assessing whether the price offered by a seller is reasonable. But, how do you determine the value of a home accurately? Well, the best and most common way is by running a comparative market analysis. Before we show you how to do a comparative market analysis, let’s first go over the comparative market analysis definition. What Is a Comparative Market Analysis? Comparative Market Analysis (CMA), also referred to as real estate market analysis, is the process of finding real estate comparables so as to determine the fair market value of a property being bought or sold. Real estate comps form the basis for this analysis. But, what are comps in real estate? Real estate comps are properties similar to the property that you are examining and are located in the same area. Every real estate agent needs to know how to find real estate comps and how to do a CMA. Let’s walk through the key steps needed to run a CMA that will impress your client. Related: How Do You Find Real Estate Comps? How to Do a Comparative Market Analysis Many factors are considered when doing a comparative market analysis for real estate agents, which can make it seem overwhelming. However, the analysis can be easily done by following a number of steps. 1. Analyze the Subject Property The first key step in CMA is to have a detailed look at the characteristics of the home which your client intends to sell or buy. You will be looking for properties that are similar to the subject property. Therefore, to run a thorough comparative market analysis, you will need to gather as much data as possible about the subject property. In other words, the more characteristics you know about a real estate listing, the more accurate the CMA is going to be. Here are some of the major property features to look at: Location Property type (single-family, condo, etc.) Acreage Square footage Number of floors Number of bedrooms and bathrooms Amenities and features (swimming pool, balcony, pole barn, garden, fireplace, balcony, veranda, etc.) Age of construction Recent renovations 2. Examine the Sales History of the Subject Property The previous sales and listing data of the subject real estate property are also useful in estimating the property’s value. This data may include the following: List price Final sale price Days on market Price adjustments Terms If the subject property changed ownership five years ago and the general price of properties in the area has risen by a certain percentage in those five years, the current market value of the home can be estimated by combining the previous sale price and the general movement of the real estate market. How fast the home went under contract the last time it was for sale also gives information about the demand for the home at the time. If the property was sold quickly, this suggests that there was a high demand for the property and the seller could have sold at a higher price had they taken a more conservative pricing approach. Long sales and price reductions show that the property was priced too high. If a home was listed but never sold, that suggests that the real estate market wouldn’t support the previous list price. It may also be because of other reasons like a saturation of supply, poor listing photos and marketing, etc. You can check a status history for each property listing on most MLSs to see the sales history. All this data is equally critical in property valuation. Based on the percentage by which median prices have risen or fallen since the subject property was last sold and any renovations made, what should be the property’s current value? Set this number aside. 3. Examine Recent Sales of Comparable Properties The next most important part of a comparative market analysis is to identify a few (3-5) comparable recently sold properties in the same area as the subject property. To get accurate comps, the properties you choose should be as similar as possible to the subject property. How recent the sale was will depend on the dynamic of that particular market. Since you are trying to find the market value of a property today and the market usually changes fast, you should look at the most recent sale data you can find. The past listings should be within the past 3 months if the market is in transition. If the real estate market is more stable and the pickings are slim, you can extend up to 6 months. The past listings should be in the same area as the subject property, preferably within a radius of 1 to 3 miles. However, make sure that there are no significant differences within this radius. A major difference in the neighborhood can make a huge difference in home value. It’s not always possible to find recent comps that fit your exact criteria. In such instances, you may search with a range close to the subject property. You can then make adjustments for comparative market analysis accordingly. Estimate the value of the differences between the homes that would make them equivalent. What does the value of recently sold comparables indicate about the value of the subject property? This makes your second number. You can access real estate comps for listings in the US housing market using Mashvisor’s comparative market analysis tool, the investment property calculator. Sign Up for Mashvisor Related: How to Do Comparative Market Analysis with a Rental Calculator 4. Examine Current Listings of Comparable Properties The next step in our real estate comparative market analysis will be to examine comparable properties that are currently for sale. This step will help you see the current housing market’s reaction to properties similar to the subject property. Collect 3-5 properties currently listed for sale that have similar characteristics as your subject property. If the comps are in a range close to that of the home you are looking at, make the necessary value adjustments for them to be equivalent. Again, you can search for current real estate listings in the US housing market using Mashvisor. 5. Assess the Micro Market Trends To run a proper comparative market analysis in real estate, it’s also important to consider what is happening in the neighborhood of your subject property that would influence the price of the home. What might influence the sale price of the subject property locally? For instance, major road construction near your subject property will affect the value of homes despite the overall trends of the real estate market in the area. Related: 10 Factors That Affect Property Value (#7 Will Surprise You) 6. Put the Pieces Together Congratulations! You have done all the important research work you need to put together a proper CMA. You have information on your subject property, the recent sales history of real estate comparables, current listings of comparables, and micro market trends. The next step is to put all these pieces together into a final product. You should have set aside the following numbers: Your property value estimate based on the property’s sales history Your property value estimate based on recent comparable sales Your property value estimate based on the current listings If you have done your research thoroughly, you will see that your numbers are pretty similar. The final step is to apply your filter for the micro market trends to these numbers to get a final set of estimates. When you arrange these numbers from the lowest to highest, you have a CMA with a projected sales price range. Depending on the aggressiveness of your property seller or buyer, you can make an offer or set a listing price within that range and get a fair deal. 7. Put Together a CMA Report At this point, you have done all the dirty work and have your results for your CMA. However, your real estate clients need the results to be packaged well as opposed to just handing them a range of numbers. For this reason, you should put together a brief comparative market analysis report. The report will demonstrate how you came up with your numbers and help the client understand the process. To make it easy for all your clients to understand, avoid real estate jargon and explain your results visually using graphs or charts when possible. Also, include copies of your datasheets for the real estate comps for your client to see which properties are part of the CMA. The Bottom Line Whether you’re helping your client to place their home up for sale or search for a home to buy, running a thorough CMA is important. With CMA, you will be able to determine what the value of the home is. Thus, it’s crucial for every real estate agent to know how to do a comparative market analysis. While it’s important for you to know how to do your own comparative market analysis, looking for comps takes a lot of effort and is time-consuming. Be sure to use Mashvisor’s investment property calculator to easily and quickly search for real estate comps. This is the best CMA software for real estate agents which will help you reduce the cost of comparative market analysis. Start Your Investment Property Search! START FREE TRIAL CMAProperty ValuationReal Estate Comps 0 FacebookTwitterGoogle +PinterestLinkedin Alex Karani Alex is an entrepreneur and an experienced content writer focused on personal finance, business, and investing. For over six years, he has contributed to a number of publications, both online and print. When he's not writing or working, Alex enjoys reading, traveling, and the outdoors. 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