What Is A CMA?
Comparative Market Analysis:
A CMA is typically conducted when a seller is working with a real estate agent to determine the right listing price for a property. The term CMA is defined differently in certain parts of the United States and it also depends on who you are talking to. It’s either a Comparative or Competitive Market Analysis, but no matter which way you slice it they are the same thing. I call it a Comparative Market Analysis since it is in fact, a comparison of like-kind properties.
What is a CMA?
It’s a comparison of the actual and recent selling prices of nearby properties that are similar to the property of the prospective listing. The similarities are location, size, style and amenities. Be aware that a CMA is not an appraisal, it is simply an agent’s estimate of market value based on recently sold, closed and funded properties, nearby and comparable to the subject property.
What is the difference between a CMA and an appraisal?
An appraisal is conducted by a licensed appraiser to arrive at the value of a property and is presented in the form of a conclusion of value. An appraisal must be conducted by a state licensed or state certified appraiser and must comply with state laws as well a uniformity code of ethics called the Uniform Standards of Professional Appraisal Practice (USPAP). There are many types of appraisals with exacting methods for conducting them.
A CMA is created by a licensed real estate agent who is working with a prospective seller to determine the listing price for a property. A CMA estimates a market value, usually in a range, based on the actual and recent sale prices of comparable properties. From there the asking price is agreed to by the seller and the listing agreement is executed.
In no circumstance should a CMA be considered to be an appraisal, or substituted for one when a certified appraisal is needed. Although they both relate to valuation, they are not the same thing. Real estate agents are not appraisers and vice versa.
Online resources:
Online resources also offer estimates of value that you can pull up by simply typing in the property address. I cannot speak to the accuracy of these estimates since I don’t know what they use as comparable properties or how far back in time they go in selecting the properties to be compared. I have seen wide variances between online resources and an agent’s CMA. Here is one recent example:
Just last week I contacted a Realtor on behalf of a friend to request a CMA on her home. The Realtor was local and experienced and she did a nice job in finding recent like-kind properties. She came up with an estimated listing price range of between $399,000 and $409,000 on her CMA. The next day I went on a popular online resource and the estimated value for the same property was $459,649. Quite a difference!
What is in a CMA?
CMA’s are presented a bit differently since the database tool used by real estate agents is MLS specific. Despite any small differences in the presentation of the data, the essential facts are similar and are typically presented in two documents - the CMA detail itself and a more easily read Summary Report for the seller.
Parts of a CMA:
Ideally, the comparable properties presented will have been closed within the last 6 months.
The comparable properties should be within the local market.
The CMA should be for properties actually sold - not active or pending listings.
Ideally, a minimum of 4 properties should be identified. The more the better.
A comprehensive CMA should show all of the following for each property identified:
MLS listing number
Property address
MLS area the property is located in
# of beds / baths
Total square feet
Lot size in square feet
Year built
$ per Square foot / sold
Original asking price
Actual sale price
D.O.M - # of days on the market
But wait, all properties are different!
True, but the MLS database (along with agent experience) take into account the variances in property characteristics by calculating value increases or decreases based on each properties unique characteristics.
Here’s an example: Let’s say the subject home for a CMA is absolutely identical to one of the homes shown as a comparable. Assume the homes were built by the same builder, exact same home, same year and are just down the road from each other. But, one home is on 1 acre of land and the other is on 5 acres of land. A value difference will be calculated for the larger lot and it would show as a positive number for that property on the CMA detail. Likewise, the 1 acre subject lot will show a comparable decrease in estimated value because of its smaller lot size.
After brewing up all of the factors there will be a summary line at the bottom of the report that averages the value of the comparable properties in the aggregate. The CMA itself is fairly easy to read but there is also a lot of detail, so the agent will typically run the Summary Report to provide the big picture on a couple of pages … but we are not done yet…
Experience of the agent doing the CMA:
People don’t price, buy, or sell real estate on computer generated data alone. In fact, the true value of any property is determined by what a willing buyer will pay a willing seller without undue influence. Buying, selling and pricing decisions for real property are made with a blend of objective facts and subjective opinions.
Let’s use my friends recent CMA as an example - and here’s where agent experience comes in: My friend has a home in an absolutely pristine community where all the residents take much better care of their properties than would be typical. As a result, the street appeal for the entire project is the very best in her area. The Realtor knew this and increased the suggested listing price range for my friend because of it.
Agents are usually very accommodating about doing CMA’s because they would obviously like to get the listing. At the same time there’s a pucker factor when presenting CMA’s because of the almost universal seller reaction - which is: “What? Is that all my property is worth?” This common reaction is due to the fact that there is almost no seller on planet earth that doesn’t think their property is worth more than it actually is.
Experienced agents balance all of this out and realize that an overpriced listing won’t sell until the price is right, so if they can’t coach the seller into reality they will advise that it will probably take more time to sell the property i.e., more days on the market. Agent’s who are newer to the game sometimes have a tendency to cave in and take an over priced listing anyway, but this tactic does nothing to help the client or the process itself.
Multiple CMA’s:
One way to get a broader perspective is to have 3 or 4 agents do CMA’s for your property. This can provide a level of comfort that a solid asking price range has been arrived at. I have used this approach before and there is nothing unethical about it. One tendency of sellers is to select the listing broker using the highest CMA valuation presented, but I don’t think that’s necessarily the best way.
If you have three CMA’s that tell you that your listing price range should be between $399,000 and $409,000 what would make you think that a fourth CMA that shows a range of $459,000 and $469,000 is accurate? I would lean toward making the listing agent selection with a combination of CMA data, agent experience and the # of days on the market that the comparable properties took to sell.
Summary:
Recently sold, like-kind properties are the bedrock of a solid Comparative Market Analysis. This, along with an experienced agent that works the local market. A good CMA can provide the objective facts for marketing a listing that will sell in a reasonable timeframe. When done correctly, it is an accurate reflection of current market conditions.
Once they are known, the seller can determine if there are any plus-side amenities or favorable conditions that can justify a bump-up on the asking price. Avoid the temptation to over price however, since that can lead to increased days on the market (DOM) and eventual pricing reductions to get to a solid offer. If the market doesn’t support the price you need currently, it may be better to market the property later when it does.
