“HEY BOB, I’M THINKING OF SELLING MY HOUSE! WHAT, EXACTLY, IS A “CMA”?”
I’m so glad you asked! There are sooooo many acronyms and abbreviations these days that it’s hard to keep up with what they all mean. In real estate lingo, “CMA” stands for “Comparative Market Analysis” (or to some people, “Competitive Market Analysis”, which is exactly the same thing). A comparative market analysis is an examination of the prices at which similar properties in the same area recently sold. Real estate agents perform a comparative market analysis for their clients to help them determine a price to list when selling their home. A CMA is a great resource and tool when selling a home.
Most CMAs will also include active homes currently listed for sale as well as those currently under contract (which are known as pending sales). These properties do not determine value, of course, because value can only be established once the sale of a house is closed. But they can indicate what the sellers’ “competition” on the market is for any given market or area. Also, some agents will include expired and terminated listings which can indicate those homes were overpriced or taken off the market for various reasons.
“I’VE ASKED THREE DIFFERENT REAL ESTATE AGENTS FOR A CMA, SO I SHOULD GET THE SAME VALUE FROM EACH OF THEM, RIGHT?”
Umm, probably not. In fact, oftentimes they’ll have up to thousands and even tens of thousands of dollars difference! Why? Because they may use different comparable properties in their CMAs which can change the suggested value range considerably.
“SO HOW DO I KNOW IF THE VALUE OF A CMA IS ACCURATE?”
Unfortunately, creating CMAs is not an exact science. The accuracy of the CMA is based on the quality of the comparable properties (“comps”) being used in the analysis. Here are several things an agent must consider when choosing comps:
- Characteristics of the comp home used. When it comes to the number of bedrooms, baths, the age and square footage of the home, the size of the lot, and other features of the home, the comparable homes should be as similar as possible to yours. It’s rare, except in large cookie-cutter subdivisions, that you’ll get all of these things to compare exactly.
- Where the property is located. The very best situation is that the home is in the same subdivision. That’s not always possible, so the next consideration is locating comps in the same general area. When you can’t get suitable comps that way, very similar homes in similar subdivisions in other parts of town may be the only resource available.
- The date the property sold. The more recent the sales, the less likely that the market has moved enough to make the properties’ sold prices irrelevant at the time of the CMA. Agents typically use properties sold within the past three months (90 days), but even six months or longer can be used if no other more recent comps are available.
“MY HOME IS DIFFERENT THAN MY NEIGHBORS’ HOMES. HOW CAN THEY BE COMPARED?”
By making adjustments to the property being compared, i.e., your house. Once the agent identifies three or four homes comparable to yours, he or she will make adjustments to “equalize” the properties. Since a bedroom or bathroom can’t literally be added or removed from your home, an agent adds or subtracts from the estimated value to adjust for such differences as number of bedrooms, number of full and half bathrooms, number of garage spaces, and amenities and upgrades when determinable.
“ARE THERE ANY OTHER FACTORS TO HELP ME DETERMINE THE BEST LISTING PRICE FOR MY HOUSE?”
Yes! Updates to your home and its current condition can cause the value to vary by thousands of dollars. Potential buyers tend to look beyond just what they “see” to how they “feel” when viewing your home. A veteran real estate agent takes these into consideration when valuing your property.
“SHOULDN’T I OBVIOUSLY LIST MY HOUSE FOR THE HIGHEST PRICE? I MEAN, I CAN ALWAYS LOWER MY PRICE LATER ON, RIGHT? I DON’T WANT TO LEAVE ANY MONEY ON THE TABLE.”
This is probably the most common mistake home sellers make. Why? Because this isn’t like selling your old Toyota on Craigslist. All real estate agents as well as the public have access to the prices and information on the homes for sale on the Multiple Listing Service (MLS). And it’s a proven fact that the best potential buyers are those who view your home the first two weeks it’s listed on the market. So let’s say a buyer is looking online for a home in your neighborhood and there are three other homes for sale similar to yours on the market. And those three are all priced within a few thousand dollars of each other, but yours is, say, $30,000 higher than any of the others. And since they are all similar in size, age, rooms, etc., those buyers aren’t even interested in viewing your home.
So your home sits there without any or very few showings from potential buyers. You begin blaming your real estate agent that they’re not doing enough to market your home for sale. And a key statistic known as “days on market” (DOM) begins to grow until buyers are even more turned off, thinking “What’s wrong with this property? Why has it been on the market so long?” Even if you reduce the price, any offers from potential buyers will be lower than expected because they believe you’ve had trouble selling your property and they’re looking for a deal. So you continue to reduce the price until you finally agree to a buyer’s offer—way below your original price and even below the comps in the neighborhood. It’s what agents call “chasing the market”, and it ends up costing you, the seller, more time and money than if you had listed your home at market value in the first place.
So please don’t fall into that trap. If the market in your neighborhood is on the rise, then it’s okay to list your home for sale at a price slightly above current market value. But be reasonable and discuss it with your agent or you may truly be leaving money on the table.
So, here’s my mission: