When you’re working with a real estate agent helping you to find and buy your next home, after you’ve got your shortlist or made a tentative home selection, you need a Comparative Market Analysis. A CMA is a regular part of the listing process, with the listing agent doing one to determine the listing price for the seller.
CMA, Comparative Market Analysis Basics
The listing agent will note down the features and other variables that help to determine the value of the home in the current market. Then the agent goes to the MLS sold records and finds three to five recently sold homes that are similar to the house to be evaluated.
The idea is to take these homes, called comparable or comps, and use their sold prices to calculate the value of the house to be listed. It isn’t as simple as just taking those sold prices though. Adjustments will be made to them based on the differences between the comps and the home to be valued. Rarely are three or more comparable homes exactly like the one being evaluated.
The agent will use their information and experience to value the differences in the homes. When a comp has an extra bedroom or bath more than in the house being evaluated, the dollar value of that room gets deducted from the sold price. It works just the opposite when the comp has one or fewer bedrooms or baths. This way the values of the comps are brought into line for feature differences.
Once the comp sold prices are adjusted, they get averaged along with the square footage. Then the average sold price per square foot is calculated. Multiplying that by the square footage of the home to be valued yields the approximate current market value.
Why Do Another One for the Buyer?
Buyers could want one because it’s been a while since the one done for the seller and the market may have changed. Or, perhaps the buyer(s) want to check the first one with comps their buyer agent selects. However, there is a far more important reason, and it’s going to be a different type of comparison.
For this CMA, the agent will be selecting comps from currently listed homes, not sold properties. The goal now is to check the asking price of the home against the current competition in the marketplace.
Suppose the market has slowed down, with more listings hitting the market and slowing sales. In this case, the asking prices may be sliding in response to more listings, but not more buyers; the home under consideration for purchase may be worth less money though the amount has not yet been reduced.
If listings have slowed down and homes are selling, then fewer comparable active listings could mean more competition for listed homes and escalating prices. Knowing that the seller could find this out and raise the price could factor into your offer price or negotiating strategy. At the least, in this case, you know that the home is worth at least what they’re asking for it.
If your buyer agent doesn’t suggest a CMA, you may want to ask for one. Now if they ask why, you’ll know what to tell them and show that you’re a savvy buyer.