BLOG
The lighter side of real estate
 
 

Comparative Market Analysis: How Much is Your Home Worth? (Infographic)

Knowing the value of a home is the first step in selling a house. One important tool an agent has is a Comparative Market Analysis.

David Cross

Content Editor

235 articles, 24 comments

Comparative Market Analysis Infographic

Embed This Infographic

Knowing the value of a home is the first step in selling a house. But this can be a difficult task. It’s not enough to have a rough estimate. An agent is a trained professional who understands local housing markets and makes a professional judgement as to what a home is worth. One important tool a real estate agent has at his or her disposal is a Comparative Market Analysis.

What is a Comparative Market Analysis?

A Comparative Market Analysis (CMA) is an evaluation of similar homes in an area–also known as comparables—to determine the value of a home. Real estate agents, buyers, and sellers perform a CMA to figure out a price range for a home, and then use it as a guide for putting the house on the market or for making an offer on a home.

The first step in doing a CMA is setting criteria. When creating a CMA you want to compare apples to apples. That’s an overused statement, but it’s important. If you do not compare similar homes, you might overestimate the value of your house. Worse, you might undervalue its worth.

Comparable Home Criteria

You should aim for at least three matching criteria, but the more the better. Standard criteria are:

  • Location: The location of a home is more than its school district. Location includes things such as a view of the ocean compared to a view of a cell phone tower.
  • Type: Compare your house to a house—not a condo. Compare your condo to a condo—not a house.
  • Date of Sale: You’ll want your comparables to be recent. Try to stick within a three month period. If you have to, expand to six months. Remember, the further out you go the less useful the information.
  • Size:  Your comparable’s square footage should be within 15 % of your home. A house that is obviously much larger than your house will probably sell for more, all else equal. Conversely, a house that is much smaller will likely sell for less.
  • Neighborhood & School District: If at all possible your comparable should be within the same neighborhood and school district. Some agents use use a five mile radius within a metro area and a 25 mile radius in rural areas. It’s actually a really good idea to drive by the home to get a first hand sense of the neighborhood.
  • Number of Bedrooms & Baths: Try to compare homes with similar bedrooms and baths. There is some wiggle room here, but a home with three or even four more bedrooms than your house, isn’t a strong comparable.
  • Age & Style: Try to compare homes with similar styles and from the same age group. As a guideline, the older your house is the larger range there is in comparables. A home that is 80 years old is likely similar to a home that is 90 years old.
  • Condition of Home: If your house is a fixer-upper in need of a new roof and some yard work, it’s best not to compare it to the immaculately maintained house down the street.
  • Lot Size and Usability: You don’t want to compare a significantly large lot to a modest lot.

Once you’ve set your list of criteria it’s time to begin searching.

Confirm A House’s Relationship Status Before Committing

The more listings you can find the better, but there is a priority. Here are the types of listings you’ll look through:

1. Sold Listings: As the name suggests, this means the comparable has sold. This is a good indicator of the value of a similar house.

2. Pending Listings: This means a seller has received an offer and is awaiting final approval from a number of parties. This too, is a strong indicator of the value of a similar house.

For Comparison, but not for valuation:

3. Active Listings: Houses that have an “Active” listing are still being marketed for sale. Looking at these types of house will tell you what others think a similar house is worth. Another way to think of this is scoping out the competition.

4. Off-Market Listings: These houses, for a variety of reasons, are not being shown to potential buyers. It’s possible these homes are being partially renovated, or they might be in the process of being sold. It can be hard to tell.

5. Expired Listings: These are homes that were on the market for a specific amount of time. For whatever reason, they did not sell. The most likely culprit for why a home “expires” is because the asking price was too high.

These are the basics of a Comparative Market Analysis–if such a thing can be called basic. We’ve heard time and again that there is an artform to conducting an accurate CMA. And just like all art forms there are differing opinions as to what matters.

Everyone is doing it wrong! Except you.

One of the major points of contention in conducting a CMA is the use of distressed properties. We wish there was an easy answer. Unfortunately, there isn’t. Agents are divided on this issue.

Distressed properties are homes that for a number of reasons are being sold below fair market value.  These include:

  • Foreclosures
  • Short Sales
  • REOs

The homes in these types of sales typically sell for less than they otherwise would. Because of this some agents argue they are not good comparables. In other words, a home that sells for less than it’s worth shouldn’t affect the value of another home.

“In themselves, these 3 subdivisions are not comparable to the general new-home or pre-owned home being bought or sold under “normal” conditions,” said Movoto Partner Agent Bob Faulkner. “The Buyer/Seller will be well served to make sure that…they are truly comparing apples to apples.”

But here is the point of contention: Whether we like it or not foreclosures, short sales, and REOs do happen—and they go on the market.

Movoto Partner Agent Enyinna Ezeife-Oshakuade put it this way, “In getting your CMA done be sure to include ALL comparable properties, including short sales and REO properties.  Many people have the mistaken notion that those properties are not to be included in a CMA being done for an equity sale property. The fact is that all comparable properties need to be taken into consideration in order for you to generate an accurate CMA.”

If we had to choose a side, we’d go with including the Foreclosures, Short Sales, & REOs when performing a CMA. Our partner agent Dina Castiglia put it best when she said, “As far as Foreclosures; Short Sales & REOs are concerned they must be factored in if they are a true comparable (location, condition, type, size of both square footage & lot). If you are in an area where the market is still declining, this will help you make the right price choice for the property in question. Similarly if the area is on an upswing, or stable, the few foreclosures, short sales or REOs won’t be very negatively impactful but they will be accurate.”

Your Home is Trendy: Real Estate is Hyper Local

In doing research for this post, we asked Movoto Partner Agents about what goes into an accurate home price evaluation. Nearly all agreed a CMA was important in determining a price range for a piece of property.

However, many noted a CMA should be used in conjunction with knowledge of a local market. We talked about this briefly when we said a CMA should include recent home listings, opposed to sales that occurred even a year prior. What we mean is that a local market, especially the number of homes being sold in an area, will influence property value.

This is basic supply and demand.

If supply is low, the price of a house might be worth more because there are more people wanting homes. However, if there is more homes on the market than people wanting to buy, a house might lose value. One way of gauging an area is to know how long other houses were on the market before they sold.  This is known as “Days on Market.”

“In a seller’s market like today in the SF Bay Area, pricing can be a little aggressive,” said  Movoto Partner Agent Daniel Pizano. “Using Pending Sales can be one way to determine which way the market is headed towards in terms of prices. The condition of the market and the number of listings or competition is an important factor when choosing a price to list a property at.”


Facebook

Who is Movoto Real Estate, you might ask? Movoto is a national online real estate brokerage. Our blog has been recognized for its unique approach to city-based research by major news organizations around the world such as Forbes, CBS News, and The New York Times.

posted on: June 15, 2012
3,092 views, 13 comments

Facebook Conversations

comments

13 Comments

  1. Denise Ruiz

    I believe that distressed sales should only be used in a CMA when there are not enough general real estate sales to create a true market value. If distressed sales are the only sales in a neighborhood it could be a sign of a declining area.

  2. Allen Kennemur

    The problem is that if the area is HEAVILY saturated with foreclosures then the appraiser will be forced to use them as comps. Also, some of the banks are starting to rehab the homes before they put them up for sale. At that point the home is a valid comp and should be considered.

  3. Bill Seiden

    In going over your CMA comments I fully agree with you.
    I have been doing the way you describe for 10 years and find it most successful. I use distressed home (S/S, REO
    ans forclosures)in my CMA’s but I point out which ones they are. I have been using a company named Tool Kit Cma
    to detail my CMA and find their for mat excellent.

  4. Tracy Delashmit

    REO and short sales have to be included for an accurate CMA. But foreclosure sales should not be because the bank or mortgage insurance company are involved plus you have to have funds available at the time of the sale. (No time for financing). Also pending short sales should not be used because you dont know if the 3rd party is going to approve the price.
    The sites suggested for research are the best available to the public but dont let you know if it is truly an arms length transaction. Sometimes they show the foreclosure sale or a dissolution transfer, etc. You should always have a competent Real Estate agent perform this task for you, they have the resources to seperate those unwanted comps out of the equation. And always at no charge.

  5. Nancy Elieff

    You must include all sales in CMA’s, because appraisers will. Unfortunately for sellers, that would bring their price down. This is not the agent’s fault, but blame the predatory lenders who made bad loans to buyers who could not afford the properties, blame Obama for failed policies that hurt businesses and in turn have caused downsizing, and blame the world for a poor economy. None of that is the agent’s fault, and putting an unsalable price on a new listing is not the answer.

  6. Cathie Chasman

    I must include foreclosures in my BMAs for relocations!

  7. Tricia Lopez

    Please ask a local Realtor for your comps. They will be glad to help you establish a value. Supposed “value” on Zillow and other online sites take into consideration ONLY the location and sale price. You don’t know if other homes in the area or nearby are palaces or shacks. You must consider sales of a similar quality of homes, as well as local market conditions, to get a proper value. I’ve seen many instances of this, most recently when Zillow said a house was currently worth $250,000, but it would require $350,000 to buy it on today’s market.

  8. Wenceslao - Miami Real Estate King

    Nicely done. One cannot underestimate however, the importance of cleanliness, neatness, providing a feeling of “spaciousness” and the ability for buyers to see themselves in this (their future, new) home. Of course, staging could be one of the best investments to a seller. For little expense, properly staging a property for sale and eliminating personal touches that could distract buyers, could be the difference between your home or your neighbor’s home selling first.

  9. Chris Leach

    In today’s real estate market, we need to include Short Sales and REOs, otherwise, we would not have many comparables to have an accurate CMA and recommend the purchase price to our clients.

  10. James Colin Campbell

    excellent article about CMA

  11. Lizardo Garcia

    The fact is that in today’s real estate market, we need to include Short Sales and REOs, otherwise, we would not have an accurate CMA and be able to recommend the sales price to our clients. Besides, most of the banks are getting an appraisal done before they accept any offers in a short sale and a similar procedure for the REOs.

  12. Larry

    I absolutely AGREE! CMA should include ALL recent sold properties because REO & Short Sales do have an effect on current market prices unless of course your an Ostrich with it’s head in a hole.

  13. Kieran M. Jackson, REALTOR, SFR

    An interesting point to be made is that, mortgage lenders tend to weigh heavily on professional appraisals. There is a HUGE difference between an appraisal, and a CMA!

    An appraisal relies on a study of what’s to come in the future. Sounds like Nostradamus to me.

    The CMA however, bases the value of any given property on what the latest buyers have willingly paid for comparable real estate. This is a much more reliable dynamic, in my personal opinion.

    What do you all think?

    All the best,
    Kieran Jackson
    Keller Williams Hollywood Hills

 

Leave a Reply

Name:
Email:
Comment: