Once you pass your licensing exam, you may want to breathe a sigh of relief. And, you totally should. But only for a moment because the real work has yet to begin. You see, the licensing exam covers most of what you need to know, but it does not have all of the information.
One of the most critical missing pieces from real estate school is how to do a comparative market analysis. The CMA is a skill and tool that will gain you customers and help you while you sell.
So, let us jump into how to conduct a comparative market analysis. Keep reading below to learn about the several steps that go into writing a killer CMA.
What Is a CMA in Real Estate?
First off, you need to know what a comparative market analysis (CMA) is all about. No doubt you are searching for things like “What is a comparative market analysis” or “What is a competitive market analysis?”.
The two terms mean the same thing. A CMA is a process that helps to estimate the price of a house. The agent often compares the home to others that are similar to it in the area. By doing this, they can estimate the fair market value of the home for sale.
The comparative market value does not just aid the real estate agent, though. Both buyers and sellers should show interest in the CMA, and here is why.
If someone is buying a house, they will not settle on any price you give them. Instead, they want to know the CMA estimate so they can determine whether the price is fair.
Likewise, if someone is selling a house, they need to figure out if their selling prices are higher or lower than other houses in the area. If it is too high, the house may not sell. And, if the price is too low, the seller may lose money.
So, why is it so critical for a real estate agent to calculate the comparative market analysis? An agent who knows the CMA has all of the answers to a client’s potential questions.
After all, you don’t want to be in a situation where you cannot provide the client with details. If you come prepared with knowledge of the house up for sale, you will impress the client. Not to mention, it is easier to sell when you know all the ins and outs of the house!
Look at Comparable Properties
Real estate agents often refer to comparable sales as comp or comps. These are properties that have just recently gone off the market.
You can use them to compare your house to calculate the market value. Keep in mind, even with comps, finding the CMA is a trying task.
There are several factors to consider to find a good comparable:
Find comparable properties that are within the same area as the house for sale. As a rule of thumb, ensure most comps are in the same neighborhood.
House sale data fluctuates every other day, it seems. So, look at the houses that have closed most recently in your area, because they will show the most dependable prices at the moment.
Take into account that some houses sell with all-cash deals. These houses have prices that are either very high or very low. If you come across this, do not use the house as a comp.
Be sure to take note of every feature that the homes have. Remember, you want to compare homes. So, if one house has a swimming pool, look for a comparable property with a pool as well.
You’ll want to be careful when you go on the hunt for comparable properties. If you don’t use the right ones, you could mess up your comparative market analysis by estimating a price that loses you money.
Learn How to Use Comparable Properties for Your CMA
In this section, we will show you an example of how you can use comparable properties. Though no property is identical, you would do well to find ones with similar features. That way, the process of comparing is much smoother for you.
You might also want to create a list so you can see the comparisons visually.
Consider something like this:
- Comp #1: $400,000, sold four months ago, 3,000 sq. ft., 3 bedrooms, 2 baths, pool, 2-car garage
- Comp #2: $430,000, sold six months ago, 3,000 sq. ft., 4 bedrooms, 2 baths, 2-car garage
- Comp #3: $460,000, sold seven months ago, 3,300 sq. ft., 4 bedrooms 3.5 baths, 2-car garage
Keep in mind that these are general examples. A more in-depth list of comparable properties would include other aspects like:
- Number of acres
- Pool
- Basement
- Finished or unfinished renovations
- Fireplace
- Condition of the house
However, you can now see what the comparisons look like when you look for comparable properties. That list will help you to choose which houses are worth using and which to avoid.
Look at Comparable Properties on Sale Now
Okay, let’s say you have problems finding properties to compare. If you cannot find recent comparable houses on the market, don’t sweat it.
You can always find ones that are currently up for sale. When you do this, be sure to scout for about six houses. These are properties listed on the market as recently as possible.
Resources You Can Use to Find Comparable Properties
Your multiple listing service (MLS) is a great tool to use when you start your search for comparable properties. Along with that, you can use Zillow.
Zillow is one of the leading websites for realtors to use when figuring out an asking price for a property. This website pulls up what they dub a Zestimate. By running through public data, Zillow pulls every record for a sales comp that it can find.
If you don’t trust the website to find you a good comp property, you can search manually. Since most houses list or show up on Zillow, you are sure to find at least one home similar to the one you are selling.
Here is how you use Zillow:
- Type www.zillow.com into your URL bar
- Create an account with a login and password
- Click the “buy” tab to search for sales comps
- Locate the button in the upper right-hand corner that says expand
- You can now see the “Choose Comps” button near the Zestimate
Since Zillow is so easy-to-use, it can potentially cut your research time down a bit.
Other websites you can use are:
- Realtor.com
- Trulia.com
- Redfin.com
Remember to take care when using these websites, and don’t take everything they say as the absolute truth. Run your estimates alongside Zillow, and you should have a decent of comparable properties at the ready.
Gather the Data
Gathering data means that you have to buckle down and research every aspect of the house you are trying to sell. And when we say everything, we mean everything. By the end of your CMA, you should be able to list off the house’s details and features with ease.
This step is also critical because you cannot conduct an in-depth comparison with other houses if you don’t know anything about the home you are trying to sell. To help, here is a list of components to consider when evaluating your house.
The Location
Location plays a huge role when it comes to properties. To start, look into things like:
- Neighborhood
- Street Address
- Community (Is it gated? Does it require a passcode?)
- City
- County
Learn everything you can about the area and research what makes it desirable. These are what control the market value of your house and others similar to it in the vicinity.
People look for things like:
- Proximity to schools
- Rate of crime
- Closest restaurants, grocery stores, and other places of the sort
- Noise complaints
You can find comparable properties for your CMA much easier by using the above credentials and suggestions.
The Condition
Age and condition play into a property’s value for several reasons. First off, an older house may sell for as much as one that is brand new. Sometimes, houses built a few years back, or even decades ago, are not compatible with modern-day amenities and technology.
Even if this isn’t the case, people still maintain the notion that older means more issues with wiring, maintenance, and other household problems. On the other hand, newer homes show the promise of sporting high-end amenities and appliances.
However, not all older homes sell for lower prices. If a house has historical value, that could cause the price to skyrocket. So, do a little extra digging to see what the history could be behind the home.
The Size of the Lot
The lot size may not seem like a big deal, but it impacts the market value severely. Look into how many acres the house sits upon, and then compare it to other houses in the same area. When you do this, you will see how much different the value is, even if there is .5 of an acre missing or added to the property.
The Square Footage
Along with lot size, you can take into account the square footage of the house itself. Naturally, if the footage is small, the price is lower.
Likewise, the more room there is inside of the house, the higher the value goes. So, take some time to evaluate and compare how many square feet your house is against neighboring homes.
The Number of Rooms
Everyone loves an extra room or bathroom. That is especially true if you have a nuclear family size or larger.
Due to this fact, the number of rooms will affect the price of the house. Bedrooms and bathrooms aren’t the only spaces to account for, though.
Be sure to look into other areas such as:
- Den
- Extra living/family room
- Dining room
- Basement
- Attic
- Nooks
- Laundry room
- Sunroom
- Loft
- Pantry
- Gym
- Pantry
- Food/drink storage
- Media center/room
Take everything into consideration that has the potential to add to the list of rooms.
The Amenities
Along with rooms, people also love amenities. So, whatever you can add to the list, do it.
A quick list of amenities includes:
- Pool
- Porch
- Patio
- Fireplace
- Washer and dryer
- 2-3 car garages
- Backyard
- Backyard with a deck
- Large front yard
- Balcony
- Countertops
- Types of floors (wood, carpet, tile, etc.)
- Outdoor kitchen or bar
- In-home theater
- Garden
- Fountain
- Courtyard
- Sprinkles
- Garbage service
Consider amenities that exist both indoors and outdoors. Also, check to see what style of home it is. There are various styles like a bungalow, colonial, and contemporary.
Get Tax Info
The next step in your CMA involves recording the tax information. Property taxes are a tricky situation because they tend to fluctuate for several reasons. Depending on the municipality, the tax rates may vary.
That is information crucial to the homeowner because they have to pay all of those different taxes. So, when you look for comparable properties, be sure to record all of the district’s taxes. If you want, you can even use a tax estimator to help you find the most accurate amount.
Here is some pertinent information that you should collect when gathering tax information:
Assessed Property Value: All this value contains is the value without any exemptions. Tax collectors often utilized the assessed property value to determine how many taxes to collect from the homeowner.
Millage Rate: This is a way for states to assess a property’s tax liability. There is a way to calculate the millage rate so you can come up with reliable numbers. Remember, the rate affects how high or low a home’s taxes will be.
The next bit of information you need to know has to do with abbreviated appraisals. Since taxes change so often, and so many factors play into those changes, the state assesses a community’s homes.
These are decent starting points when you find other houses to compare. However, since the state does not appraise the home thoroughly, newly renovated amenities and spaces are not included. Therefore, these should be mere references instead of using them as a solidified basis for writing your CMA.
Find Previous Sale Data
After you find all of the tax information you need, it is time to look into your subject property’s selling history. When you do this, you need to collect sales data.
This information includes:
- List price
- Selling price
- Terms of sale
- Adjustments to price
- Number of days on the market
Remember, when writing an awesome CMA in real estate, you can’t depend solely on comparable properties. The key is to evaluate the selling price of the market.
When you dig into the home’s background, you will find the previous listing and selling prices. Once you gather this data, you can then look at the comparable listing/selling prices on the market.
Now, you can juxtapose the information to assess the overall status of the current market. You can see how fast or slow the house sold in the past. That gives you some indication as to how popular and in-demand the home is.
However, a house always selling may not be the case. Some properties have a difficult time or never sell in the first place.
If this is the case, then that information is just as critical to your comparative market analysis. Ask yourself why the property won’t sell, and then figure out a list of possible reasons.
Ask yourself questions like:
- Where is the house located?
- Are there things that need fixing in the house?
- Are there any renovations?
- Is the house old or in poor condition?
- Is it out of the way of necessary amenities?
- Are the listing photos poor or unclear?
- Is there a recession in the local area?
Gathering this data shouldn’t be too difficult of a task, either. Most multiple listing services, or MLS’s, show every house that has been on the market or is currently up for sale. Therefore, the past sale history is public knowledge and easy to find.
Examine the Trends
All this step entails is paying attention to what is happening around the community. Keep an eye on any activities near your property, and see if they will cause the value to fluctuate.
There could be construction or some kind of maintenance conducted on a road or highway near the neighborhood. That micro-market trend would bring the value of the houses near that area down.
However, there are also beneficial trends like a garbage service or security added to a gated community. These micro-trends can happen at any time, so stay vigilant during the comparative market analysis process.
Piece Together Your Analysis
Alright, at this point, you have finished your research and data. You have a list of property details and your comparable properties, and you’re watching out for those ever-changing market trends.
Now, it’s time to put all of those details into your written comparative market analysis. Most people write their comparative analyses on a spreadsheet, usually through Microsoft Excel. On this sheet, you input the information we discussed above.
Organize it into a tidy, presentable project that makes sense when others read it. If you making a spreadsheet isn’t your thing, there are countless CMA templates out there for you to use.
All you have to do is open your internet browser and type in something like “Comparative market analysis free templates” and countless options will pop up. Then, you click to download the template and input your data where it is necessary!
Finalize Everything
Always be sure to run over your CMA before dubbing it as finished. Remember, this is going to go out to other people like clients and buyers. So, you want to ensure everything is as perfect as possible.
Read through your CMA, and then read through it again. And again. When we work on something so hard for so long, our brains inevitably skip over issues like typos and grammar errors.
Re-reading your analysis will help you catch things that passed you by before. You can also read it aloud. Hearing yourself vocalize the text will tell you if there are any clarity issues.
Since this report is going out to people who aren’t real estate agents, be careful of the vocabulary. You don’t want to weigh it down with bulk specific to real estate agents. Most people do not know these terms, and it is confusing to them.
Another tip is to ensure you add plenty of visual aids. Studies show that people’s attention span wanes when handed a presentation bogged down with writing and text.
To keep their attention, implement charts, graphs, and images. This trick also helps them to understand the up-and-down nature of the housing market.
For More on How to Do a Comparative Market Analysis
Real Estate school teaches you the basics of becoming a realtor, but there is still so much more for you to learn. For instance, you have to teach yourself how to do a comparative market analysis.
That in itself is a trying task, which is why we put this guide together. We hope this article has cleared the air on the steps to writing up a quick and detailed competitive market analysis.
Remember, always start by learning everything you can about your property. Once you get that down, you can look for your comparable sales and collect data on the sales history and taxes. In essence, a CMA is simple, though it is hard work.
If you enjoyed this guide and want more real estate tips and tricks, we invite you to come to our website. Host Group is one of the leading education programs for realtors. So, check us out today, and get started on your journey as a real estate agent!
