If you’re in the process of selling your house, the term ‘comparative market analysis‘ will definitely come up in your conversation with your real estate agent. Houses are usually related to our most precious memories, therefore, coming to the decision of selling yours to strangers can be emotionally difficult. Sometimes, we think of our houses as too valuable, just because we’ve experienced so much in them, forgetting in the process that everyone else doesn’t see it the same way we do.
Therefore, as a seller, you might think that your house’s value is higher than it actually is. So, that’s where a real estate agent’s role comes into place. A real estate agent should handle the issue of putting a realistic number on your house in order to make it easier and faster to sell.
So, what is comparative market analysis, why do you need it, and what are its components? We will tackle the answers to three above-mentioned questions in order to let you understand comparative market analysis as an investment property real estate agent, a property seller, or a property buyer. It is worth mentioning that Mashvisor can be very beneficial in answering your most burning real estate questions regarding investment properties, rental properties, buying a rental property, owning an income property, and more. So, be sure to check it out.
What Is Comparative Market Analysis?
Comparative market analysis, or CMA, is the determination of a real estate property’s value in comparison with similar recently sold properties in the same area. CMA is usually performed by a real estate professional agent for his/her client. A real estate agent considers in his/her CMA properties that are both listed for sale and others that have been recently sold.
Related: Real Estate Market Analysis: The Basics.
What Is the Purpose of Comparative Market Analysis?
Comparative market analysis gives a realistic estimation of a house’s worth in the housing market. This analysis is achieved by taking into consideration the prices for which similar properties are listed for sale or have been recently sold. Through CMA, property sellers will be able to list a price for their property that will be good enough for the property to be sold fast. Property buyers also benefit from CMA as they get a realistic number to offer when they’re buying a house.
Related: Why is Real Estate Market Analysis So Important?
What Does a Comparative Market Analysis Report Include?
Real estate agents compare eligible properties that are in the same area as your property. A CMA report will include active listings, sold listings, pending listings, and expired listings. Real estate agents use these properties data as an example of what went right or wrong, in order to make the current property’s sale process a success.
- Active Listings: Active listings are the currently listed for sale properties. When conducting a CMA, real estate agents take a look at the properties similar to their clients’ because these properties are the competition. However, the prices listed for these houses are not considered a standard until these properties are actually sold. It is also worth mentioning that most properties sell for less than their listed price in a buyer’s market.
- Sold Listings: Sold listings are the houses that were sold in the past six months or so. During a comparative market analysis, real estate agents use the data on sold houses similar to your property to determine the price of yours. Also, these houses will be used for comparison during house appraisal.
- Pending Listings: Pending listings are houses under contract; they are no longer in the category of active listings, but they’re also not a closed deal yet. Therefore, this kind of listing is not considered a comparable sale until the sale process is finished, and the contract is signed.
- Expired Listings: These are the listings that were taken off the market for multiple reasons. One of the reasons could be an irrationally high price. Therefore, real estate agents look at the reasons behind the sale failure and try not let their client’s property meet the same fate. Inspecting the house for repairs is also necessary in these cases.
Expired listings can be turned back into active listings by putting a new, more realistic price for the house. It can also be handled better by a new marketing strategy, repairs or even a new, more experienced agent who knows your property better.
What Are the Property Features Real Estate Agents Take Into Consideration When Performing CMA?
Each house has its own features; however, some houses share multiple features that can be considered during a comparative market analysis to determine a house’s worth in the real estate market. Comparables are the houses that resemble yours in terms of age, size, condition, and location.
Below are the house features most used in comparative market analysis to determine a property’s price:
- Location: We’ve already established the importance of location in comparative market analysis. You can’t compare two properties that share the same interior features, but neglect the fact that they are located in different areas. A house’s view also plays a huge role in the CMA process; a house that has a lake view, for example, is worth more than a house that is surrounded by other houses or walls.
If your property is located in an undesirable area, it has to be compared to sold places that share the same location and condition. That is how you can get the most accurate price when you decide to put your property on the market.
- Square Footage: Real estate agents compare houses that have similar square footage (within 200-400 square feet). It is worth mentioning that adjustments must be made in a CMA if the house in question is proven to be larger or smaller in square footage when compared to similar houses.
- Age: The subject house should be the same age or within few years of the comparable sold houses. If your house is 30 years old, you cannot sell it at the same price as a 10 year-old house was sold for in your area.
- Number and Condition of Rooms: Bedrooms, bathrooms, and kitchens are the most important rooms in any house. Therefore, it is important to take into consideration their number and condition when you’re trying to compare your house to other sold comparables. If your house is a three-bedroom apartment, but the other comparable houses have more bedrooms, then an adjustment should be made on the price you’re listing your house for.
Also, bathrooms that have been under construction or renovation in recent months or years add a higher value to the house. The same, of course, applies to kitchens; appliances, counter tops, and other important features play a great role in determining a house’s value in CMA.
- Garage: There are many buyers out there that consider the lack of a garage space in a house a deal breaker. Therefore, if the subject house does not have a garage, while the sold comparables do, an adjustment to the house’s price should be made to be more realistic and fair.
- Others: Other features like floors, basements, roofs, patios, and a cooling and heating system also play a role in a comparative market analysis.
Similarity is key when it comes to comparative market analysis; real estate agents should not use different home styles or houses from other areas to compare to their clients’ properties, even if the number and condition of rooms are the exact same.
Related: What You Must Know About Real Estate Investment Analysis?
Comparative market analysis is an important process, especially for those who are thinking about selling their house. It gives a realistic price of the property based on recently sold similar properties in your area. To learn more about this and more related topics, make sure to visit Mashvisor. Mashvisor offers information on real estate investing tools and details about hot real estate topics like making money in real estate, real estate investment strategies, and much more.