The Comparative Market Analysis (CMA)

A home seller’s first thought when it comes time to sell is what is my home worth? But no only does a seller want to know what their home is worth but more importantly, how much will they net from the sale of my home.

This is when a homeowner turns towards a REALTOR or a Real Estate Agent to prepare a Comparative Market Analysis or CMA to determine the fair market value of a home.

The single most important thing you need to do when selling a home is to price your home correctly.

Your CMA report will use historical sold data to help you determine your home’s correct asking price or list price to get it sold.

What Is A CMA in Real Estate?

A Comparative Market Analysis or CMA is a report that uses current and recent historical data to identify similar homes that have sold in a neighborhood to determine the most likely selling price or the fair market value of a home.

The keyword here is data!

A number is not pulled out of the air, it isn’t based on a gut feeling, what your neighbor says it is worth or even what the Zillow Zestimate says your house is worth….

It is based on data.

What Is Included In A CMA Report?

Your Comparative Market Analysis should include the following:

Market Overview- Knowing where the current real estate market is and where it is headed will help you price your home accordingly. A failing market points to the fact you should be pricing your home slightly below market to compensate for decreasing home values. Where an appreciating market may indicate you can price a little more aggressively.

Comparable Homes That Have Sold- Your home will be compared to 3 or more similar sold properties to help give you a range of the pricing of what similar homes have sold for in your market.

Note that a seller can ask any price they want for a home but it is the sold price that indicates what the market is willing to pay.

Adjustments- In an ideal world, we could find 3 homes that are identical to yours that have sold. But in reality, every home is unique. Pricing adjustment will be made to adjust for amenities, appeal and location to either raise or lower the sale price of a comparable home.

Comparable Homes That Are On The Market Or Under Agreement- Homes similar to your home that are currently for sale give you an idea of what your competition will be when you list your home.

Under agreement homes help identify where the market is headed by seeing how quickly homes are having offers accepted on them or days on market. Shorter days on market indicate the market is appreciating, longer days on market could indicate homes are depreciating.

Pricing Recommendations- Finally your CMA will indicate a most likely range your home will sell for based on the sold comparable properties and where the market seems to be heading.

Overpricing your home is one of the biggest mistakes a seller can make. Work closely with your agent to fully understand the Market Analysis for your home.

What Makes A Comparable Home In A Comparative Market Analysis?

Real Estate Comparative Market Analysis/ Real Estate CMA — Comparable homes are used in Comparative Market Analysis to determine a home’s value.

A comparable home or “comp” as agents like to say are homes that are identified to be similar to the subject property.

Comparable properties are at the center of a CMA.

While there can be many factors that go into selecting comparable properties. Let’s take a look at some of the more important points of what makes a comparable home in a Comparative Market Analysis.

Timing

First and foremost all the comparable homes need to be currently on the market or under agreement. Sold properties used as comparable homes in your comparative market analysis need to have been sold in the past 3-6 months.

Markets change what a home sold for 6 years ago or even only a year ago has no bearing on what a home is worth today.

The recency of a comparable home is important to keep the comps in a similar market.

Location

Comparable homes should be in the same neighborhood or under one mile from the subject property. Of course, this may not always be possible so then you may have to look for homes in a similar location within the same town.

For example, a home in a neighborhood setting on a cul-de-sac will have more value than a similar home on a busy route.

Size

The comps selected for your CMA report should be within 20% +/- of your home’s size or square footage. It is almost impossible to compare a 3000 square foot home to a 1600 square foot home.

A home that is 1600 square feet will function very differently than a 3000 square foot home.

Room Counts

Room counts should be similar as well as bath and bedroom count for your comparable homes. It is impossible to compare a 5 bedroom 4 bath home to a 3 bedroom 1.5 bath home.

Style and Age

Cape Cod-style homes should be compared to other cape homes and colonial homes should be compared to other colonial homes whenever possible

Compared homes should also be of a similar age. A 1950s colonial will function very differently than a 2015 colonial.

Condition

There would be a large value gap between a 1950’s home that was in original condition vs one that was fully renovated.

It is important your comparable homes are in a similar condition to the home you are selling.

Features and Amenities

Garages, sheds, finished basements, central air, etc… may all add value to a home. Comparable homes should have similar features and amenities to yours.

Function

A lot of what goes into selecting comps is function. Do similar homes function the same way. For example, a 3 bedroom home with 1 bath will function very differently than a 4 bedroom home with 2 baths.

Adjustments On Comparable Homes In A CMA

The similarity of home is crucial in selecting comparable homes for a CMA report. But as I pointed out no two homes are alike, especially in New England.

Adjustments are a vital part of a CMA because of this.

A superior comparable home will have subtractions made to the sale price and an inferior home will have additions. This brings the adjusted sale price more in line with the subject home.

For example, take a subject property compared to the property below. + Adjustments are made to superior features in the subject property. – Adjustments are made where the subject property is inferior to the comparable home.

This gives the comp an adjusted sale price of $479,500 which is used as the comp price for this home.

Below is a summary of all the comps used and the adjustments made on another property. The adjusted comps are than all averaged out to give a most likely selling price.

Your Responsibility As A Seller

Don’t blindly accept a price given to you by an agent. And, don’t assume you know what your house is worth without having the data.

It is ultimately your responsibility to choose your list price for your home. It is important to understand the data behind the CMA report.

As a seller, a Comparative Market Analysis is an invaluable tool.

Not only does it assist in getting the proper price for your home it is an key tool to negotiate offers with confidence. You know when you are getting offered a fair price for your home and you can always use the comps as a negotiating tool.

The Difference Between An Appraisal And A CMA

A Comparative Market Analysis is performed by a real estate broker to help determine market value for a home seller to market their home.

An appraisal is a report by a state-licensed appraiser. While an appraisal on a home can be done for lots of reasons it is primarily used for a lender to verify the home is worth what a buyer is paying for it.

While both an appraiser and a real estate use similar techniques and data from the multiple listing service, an appraiser has strict guidelines to follow. This allows for some uniformity for the banks.

A real estate agent or Realtor often mirrors what an appraiser will do when they create an appraisal. can use more subjectivity in the process. One large difference is an agent has no defining guidelines in creating a CMA. More subjectivity can be used by an agent.

Ultimately, when an appraiser inspects a home the process is more data-driven than a real estate agent’s process in creating a comparative market analysis.

Ultimately, whether you get a CMA or an appraisal done on your home you will get similar values.

A Comparative Market Analysis Is Not Just For Sellers

As a homebuyer, you are concerned about paying a fair price for a house and not overpaying.

When you work with a buyer’s agent, often they will suggest preparing a CMA for you. A CMA will give you an understanding of what similar houses are selling for and what the home you are interested in is worth.

The CMA will aide in putting together a negotiating strategy and allow you to negotiate from a position of strength.

A Market Analysis can be useful both to homebuyers and sellers to determine the market value of a home.

Ways Not To Value A Home

When it comes to pricing your home a CMA is the way to go…. or an appraisal. But many sellers turn to other resources that may not be so helpful in pricing a home.

Tax Assessment- The tax assessment is a valuation of your home. But it has a different purpose. It is not to determine fair market value.

Tax assessments are used to fulfill a town’s budget based on the value of your property. While often it can mirror the fair market value of your home it is not a reliable way to determine value.

Zillow or Other Automated Values- The Zillow Zestimate is an automated value model that returns a value for your home.

Unfortunately, it can be quite inaccurate. It does not make determinations on things like location or condition which can influence a home’s value.

What Others Have To Say- It seems like everyone has an opinion on real estate and what a house is worth. But would you go to court without a lawyer?

Hire a trusted professional that is in the business on a daily basis.

Summary

A Comparative Market Analysis is a staple in the real estate industry for agents to guide sellers in choosing a list price for their home.

There is a method and reason on how to determine a price for your home. And that is by comparing recently sold data of comparable homes. At the end of the day your home will most likely need to appraise for the purchase price or higher for the bank financing your buyer. Otherwise, a bank will not lend on your home.

Get a CMA report from several different agents to compare the data. Hopefully, all the CMA’s will be within a few percentage points of each other. If there is a big swing be prepared to ask questions and why.

Two final thoughts.

First, a home’s value is a range and not just one number. Often a seller fixates on one number and can miss a good opportunity to sell their home over a few thousand dollars.

And, a home value from a Comparative Market Analysis is good for that window of time only.

If you list your home 6 months after reviewing a CMA, get a new one. Real estate markets can change on a dime and a value from six months ago can be different from the one today.

Other Resources:

When you list your home for sale, realize your house is competing with other homes. Vicki Moore has some great tips on making your home stand out from the competition.
Are the home values you get from Zillow accurate? Probably not. Kyle Hiscock explains why you should not rely on the Zillow Zestimate as an accurate way to price your home.
Not every home renovations adds value to your home and if done poorly can detract from your homes value. Anita Clark discusses 14 mistakes homeowners make when renovating their house.

The Comparative Market Analysis (CMA) was written by Kevin Vitali of EXIT Realty. If you are thinking of buying or selling a home call Kev in at 978-360-0422

Five Top REALTORS Around the Country Discuss Pricing Your Home Right

I have compiled a summary and links to 5 REALTORS discussing pricing your home right and the impact it has on you, the seller. As one of the REALTOR points out and I agree wholeheartedly, is “no amount of marketing will sell an overpriced home”.

Pricing your home properly based on market data is the most important aspect of selling your home.

Bill Gassett, Hopkington MA- Factors to Consider When Pricing Your Home

Bill has an excellent article, Factors to Consider When Pricing Your Home. In this article Bill states that studies show that the longer your house stays on the market it ultimately weakens your homes appeal and will lower the amount you will get for your home. Homes sold quickly will usually net the most amount of money for the seller.

Bill also points out that pricing mistakes mistakes are made when sellers use Zillow, Assessed Value, Refinance Appraisal and Unscrupulous or Unskilled Agents. None of these are accurate ways to price a home.

A skeilled agent will use a Comparable Market Analysis that compares similar homes to yours to determine a homes value. Historical data gathered from the Multiple Listing service is what helps determine your homes value in the current marketplace, not what your neighbors think.

His last piece of advice is if your home has been on for a month or so with little activity and no offers it is important to act quickly and drop the price.

Teresa Cowart, Richmond Hill Georgia- Consequences of Pricing a Home Too High

Teresa article Consequences of Pricing a Home Too High explains the negative impact your over pricing will ultimately have on the sale of your home.

Priced to high and sitting on the market too long will make your home sell for less
A home that is priced too high will not generate interest, buyers will not be excited about it hitting the market.
Your out of pocket expenses will end up being more as your house sits on the market unsold.
A home that is priced properly makes the negotiations go more easier and quicker.
No price reductions will be necessary if your home is priced correctly.
The first two weeks is critical in selling your home. If it is priced to high you have not captured the buyers attention.

Pricing a home too high will ultimately hurt you in the pocket. Work with your real estate agent and get the pricing right from the get go.

Paul Sian, Cincinnati REALTOR- How to Price Your Home to Sell

Paul’s article How to Price Your Home to Sell makes two excellent points.

First is he discusses the problems inherent in using Zillow’s Zestimate. Zillow uses an algorithm that compares nearby homes. Unfortunately, Zillow does not see the condition of your home or cannot make a judgement on neighborhoods like buyer’s can. The human factor is missing.

Secondly, Paul points out the investment you have made in your home may have nothing to do with the selling price of your home. For example if you spend $100,000 on landscaping on a home in a $200,000 neighborhood, as much as you want to, you will never recoup the cost of an upgrade. It boils down to what are similar homes selling for in your neighborhood.

Buyer’s know that being the most expensive home in the neighborhood is not the best investment.

Kyle Hiscock, Rochester NY REALTOR- Real Estate Pricing Mistakes

Kyle’s article Real Estate Pricing Mistakes that Sellers Need to Avoid discusses some of the common reasons sellers tend to overprice their properties. No amount of marketing will sell an overpriced home. Pricing your home properly is 80% of a good marketing plan!

Overpricing the property to leave room for negotiations is a common seller mistake as Kyle points out. Home buyers have access to a ton of information today and generally have a good handle on what a house is worth. Who will a seller negotiate with if buyers are not even looking at the home because it is priced to high?

Another seller mistake is thinking you have all the time in the world to sell and a buyer will come along. An over priced home will sit on the market unsold. If it sits long enough it becomes stigmitized and buyers shy away.

Greg Hancock, West Chester Ohio REALTOR- Pricing Your Home Correctly

Greg’s article, Pricing Your Home Correctly, discusses three key aspects in getting the most for your home.

Greg points out that a home that is move in ready will get higher offers than ones buyers perceive as needing work or updating. There are a multitude of links showing home staging can increase your homes value when it comes time to sell if not appeal.

Finally, marketing is key to getting your home sold. Gone are the days of snapping a few photos and listing in the MLS. Quality real estate photos are needed to leverage your home’s appeal and interest across the internet.

The Take Away of Pricing Your Home Correctly

As stated in the beginning of the article there is nothing more important than pricing your home right for the market. I believe each of these top REALTORS re-iterates that in their articles on pricing.

Pricing your home right from the get go will ultimately put more money in your pocket and certainly create less hassle for you. Pricing effects the time your house is on the market. Too long and home buyers start to question what is wrong with your house an phenomenon I call market rot. All a buyer sees is a home rotting like a banana left uneaten for too long.

Your homes price is not based on the Zillow Zestimate or your towns tax assessment or what your neighbor thinks. The only way to correctly price your home is a Comparable Market Analysis from an experienced real estate agent.

How You Price Your Home Directly Relates to The Showings and Activity You See

First look at home buyers search for home. If you have been in the market to buy a home where do you turn? The internet. A buyer who is just starting their search will hit a large national site or a local REALTORS site to see the available inventory. Often they end up working with one agent and that agent notifies them daily based on the home buyers criteria…. which is usually price with some amenities.

The graph shows the relationship of the amount of activity you will received based on the how the house is priced. Priced to high you will have very little, if any activity. Priced at fair market value (FMV) you will get an acceptable amount of activity. Priced below and you will get flooded with activity.

Finally two final thoughts to consider when pricing your home right for the current real estate market.

Exposing to The Wrong Buyers

Price too high and there is a good chance if you are getting activity, you are showing to the wrong buyer.

Most likely your home does not compete with properly priced homes in that price bracket. For example, your home’s FMV is around 550k but you decide it is worth 650k. Your home is going to be lacking in size, bedroom count, bathroom count, finish etc…. You may get activity but no offers because your house is quickly discounted by buyers either on the internet or quickly upon a showing. It just doesn’t compete with other homes in that price bracket.

The Relationship of Days on Market and Activity

graph of market activity for a listed home and how important it is to price your home right — Online activity as well as showing will peak in the first 7 -8 weeks usually in week 2,3 or 4. This pattern is repeated over and over on the homes I list.

As Bill Gassett points out, the longer your house sits on the market the more leery buyers get of your home. It is important to get your house sold in the first 45 days or so and even better if it is in the first 30 days. You most likely get the best price for your house because buyer excitement is high then.

Your house hits the market and peak activity will occur in the first 7 to 8 weeks usually around week 2, 3, or 4 if it is priced right around FMV.

Now this is key. The first buyers thru your house are going to usually be working with agents and have been out in the market place looking with an agent. These are your best buyers. Most of them have been out in the market place and have rejected every other home and are waiting for the next new house to come on. These buyers have may have lost a few offers for underbidding or maybe home inspection or they have been out there and not finding what they want. These are the buyers that have felt the most pain and are ready to structure the best offers.

After the peak you will find every week that goes by you will probably be getting less and less activity. The buyer’s that call after a few months on the market are probably new to the market place and have not gone thru all the older inventory sitting on the market. Once they sort there way thru all the old inventory maybe lose an offer or two they start to wait for the next round of new inventory. Your home is used as a learning experience.

When it comes time to list your home there is nothing more important than pricing it right. Take the time to really understand how and why your home should be priced for the market place. It will save you a lot of time aggravation and even money!!

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This article, Five Top REALTORS Around the Country Discuss Pricing Your Home Right, was provided by Kevin Vitali of EXIT Group One Real Estate. If you are thinking of selling your home call me at 978-360-0422.

Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest including the following communities and the surrounding areas, Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford

Price to sell or Pay the Price Later

Pricing your home properly is the single most important aspect of selling your home. It is important to price your house to sell. No amount of marketing in the world will sell an overpriced home. It is very important to know what the Fair Market Value (FMV) of your home is for that period of time. Fair Market Value is dynamic and always moving. FMV of your home 4 years ago was much different than it is today.

Fair Market Value is the price agreed upon and in which the money and property exchanges hands between a buyer and seller. Fair market Value is a price in which the general buying public would be willing to pay. Both buyer and seller, must be willing and informed, to buy/sell the piece of real estate in a arms length transaction. A transaction where neither party is desperate to sell or buy, and where the property is given reasonable exposure to the open market.

Yes, there are cases where you find the perfect buyer who will overpay for a home. Those instances are rare, you need to price accordingly for the general market. Once you determine FMV of your home than it is time to work with your agent market your home at a price to sell.

“Pricing a home is an art and not a science”

You can ask three different realtors and get three different prices. Even worse you can ask three appraisers and get three different prices. When it comes to price to sell, use your head and look at the data for yourself, don’t run on emotion.

Do not hire an agent based on the indicated price for your home

Price to sell based on historical data

Many sellers make the mistake of hiring an agent based upon the highest price they receive for their property. Instead, you should hire an agent based on the accuracy of the data they show you, how well they present it and how they are going to market your home. Lastly, be comfortable with your agent, selling a home is a collaborative effort between a seller and their real estate agent.

The following is a summary of data you would see for comparables for your home. Notice how market times, price per square foot and actual asking price reduces from expired’s to actives to solds. Their is a correlation. This actual data was pulled from the my local MLS comparing capes that have sold in a six month period with a similiar bathroom and bedroom count, similar square footage and similar vintage.

What does this data show us?

Expired’s: Unattainable Price. In a normal market 25-30% of the homes will expire on the market unsold. In today’s soft real estate market it can be up to 40-50%. The list price of these home represent a price that is unattainable in the market place. Notice that the average square foot price, asking price and days on market are the highest of all the categories.

For Sale or active: High end of Price For Sale. Prices are asking prices only, no final price has been determined. Some of these homes will sell, some will expire. For sale prices indicate the possible top end of the pricing range. Notice how the average square foot price, asking price and days on market represents the middle of the market.

Sold’s: Lower end of the Pricing Range. Sold’s are the actual sale price and represent the price range where you will most likely sell your home. Notice they also have the lowest averages of all the categories. In a down market you should price your home slightly below fair market value and sold represent the middle to high end of the range. In an appreciating market, sold represent the low end of the pricing range.

History of an Overpriced Listing in a Dynamic Market

Real estate values are constantly moving. It is very important to pay attention to house values and price to sell your house in a reasonable amount of time.

$400,000 a year ago could only be worth $380,000 today. It is very important to know the trend of values in your market, especially in a declining market. In a sellers market, where houses are selling like hotcakes and inventory is low, if you overprice your home, the market will quickly catch up with the overinflated price of the home. (Represented by the orange arrow in the graph)

In a buyer’s market, with declining home prices and tons of inventory, if you list your home at fair market value or overprice , even a little, the market continues to decline, as your homes list price becomes more and more over-inflated. (Represented by the blue arrow in the graph.)

Eventually, after your house has stagnated on the market, you have to underprice your home to generate interest in your home. A house sold in the first 60 days, will ultimately net you the highest price. Your price should generate competition among buyer’s. When their is competition, there is fear of losing something. Remamber, most buyers need to get emotionally invovled with a house before starting the process of buying a house.

The dangers of “Can’t We Just Try?”

Can’t we just try?” is a question that is always asked. The problem is you waste valuable time sitting on the market overpriced. Peak activity is in the first 3-7 weeks.

Think about it. The first showings will be from Real Estate Agents with their clients. These buyers have rejected every other house in the marketplace and are waiting for the next new house to come along. These initial buyers are tired and they have felt some pain. They may have lost offers because they have under bid, over a home inspection issue or a multitude of other reasons.

They are ready to buy and they are the buyers that will offer you the most for your house. They are the buyer’s that are most educated about the marketplace.

As your property sits on the market you’ve lost the attention of the best buyers. Now you get the buyers that are just entering the marketplace and the bargain shoppers. Less competition nets you less money.

This graph is a true representation of activity over the length of a listing. I see this pattern over and over again. The only way to change that cycle is a price reduction than the cycle may start over again…. if the price reduction was enough to regenerate interest.

Reasons Not to Price your Home to Sell

Unfortunately there is a plethora of reasons why a seller will not price their home properly for the current market conditions. Here are some of the more popular reasons. Not one of these will increase the value of your home.

Over Improvement – Improvements and upgrades should be made for enjoyment of the owner and not just resale. You cannot add an item to a home, based on personal taste, use it, then expect a buyer to pay the original cost.

Need- An owner’s need for money does not increase the value of the home. The fact that you may need the money does not mean a buyer will pay an overinflated price for the home.

Buying in a Higher Priced Area- Values are location specific. High values in the destination you intend to move to, do not increase the value of the your existing home. You made the choice to move, why must the buyer fund your move?

Your Original Purchase Price was High- You probably paid in the range of Fair Market Value when you purchased your property. The housing market is always moving up or down. As of 2009 we are back to prices we saw around 2003-2002. If you bought between 2005-2006 at the peak of the housing market, you have lost some equity in your home, much like many people.

Your List Price is Decided on Something Other than Factual data– Base your opinion of value on recent documented sale prices. Your list price should be based on sold information, not emotion or what your neighbor Bob thinks it is worth.

Bargaining Room– Buyers may offer low, but they will do that at ANY price. It is easier to negotiate up to fair market value than to an inflated price. I can’t stress how many times buyers walk away from a property that they like but feel they cannot negotiate Fair Market Value for the property. I am a licensed auctioneer and offer a hybrid auction for my sellers. Our start bid is usually around 30-50% below fair market value. Invariably, we get multiple offers/bidding and 90% of the time we sell the house in the range of fair market value. Competition creates a frenzy.

Move isn’t Necessary- Even if the move isn’t urgent, it is important to price correctly to preserve your marketing opportunities when and if the move becomes urgent.

An Offer that Falls Apart does not indicate Fair Market Value. An over priced property that is desirable can sometimes generate inflated offers. The problem is these offers are highly prone to buyer’s remorse and they pull out of the dea,l especially during the home inspection or insist on an inordinate amount of repairs.

Your Property is Competing for Buyers. Buyers today are not uninformed. They have seen multiple properties and generally viewed hundreds more on the internet. They have a good idea of what Fair Market Value is on a property. In a buyers market it is more important than ever to price properly due to climbing inventory.

There are the 3 P’s of seling your home. Pricing, Preparation and Presentation. If you do not get the pricing right, all the preperation and presentation in the world will not make a difference. Make sure you make an informed decision when choosing an agent and don’t get blinded by the agent who “buys your listing” (an agent that gives you a high number on your home to secure the contract, then beats you down on price?

Are you going to choose your agent on:

Indicated Market Price

The strength of an agents Marketing Plan

You or your real estate agent have no control over the real estate market. Th fair market value of your home is the fair market value of your home today. In a month it could be different. (in our area we have been losing approx. a half a percent a month, some of the small cities around us have been losing 1-2% a month). If you don’t get your home priced properly to begin with, it cost you money in the end.

Happy Selling!!

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This post was provided by Kevin Vitali of EXIT Group One Real Estate In Tewksbury MA. You can contact Kevin by email at kevin@kevinvitali.com or call 978-360-0422.

I pride myself in the quality of my work while helping buyers and sellers make dreams come true.

Real Estate Services in northeast Massachusetts, around the Merrimack Valley including the towns of Andover, Billerica, Boxford, Chelmsford, Dracut, Georgetown, Groveland, Haverhill, Lawrence, Lowell, Merrimac, North Andover, Newbury, Newburyport, North Reading, Rowley, Tewksbury, Tyngsboro, Westford, Wilmington, West Newbury