Comparative Market Analysis for Home Buyers
Buying a Home is (Not Really) Like Buying a Car
by Barry James
Anyone who has ever bought a car knows you must first find out the cost of similar cars in the marketplace. It's easy to gather the information you need from newspapers, the Blue Book, or online used car sales sites. Your research will provide you with the range of prices you might pay and you can an informed purchase decision as a result. It's really pretty simple and requires very little pricing expertise.
If you want to buy a home, it's not so easy and certainly not simple. The value of a home is much more difficult to predict and the information available to homebuyers can be untrustworthy. Online home values sites are fun to play with, but they are based on past sales, not current market factors. Newspaper listings give you some information, but houses are usually so different that it's hard to compare. And, you don't know how many other buyers want to buy the same house. Competitive bidding can drive a house's price up beyond what you thought it was worth.
The best resource available to homebuyers to learn the current value of a home they might wish to purchase is a CMA, or Comparative Market Analysis. CMA is the term real estate agents use when they conduct an in-depth analysis of a home's worth in today's market.
The best part about a CMA is that it's usually free!
When should I ask for a CMA?
If you don't get a CMA you might offer a price that's more than the home is worth; conversely, you might submit a price that's too low and lose out to another, better informed homebuyer. Every real estate agent in the country will want to complete a CMA on the home you want to buy before helping you buy it. Buyers who haven't yet chosen a real estate agent often ask several agents to complete CMAs so there is opportunity to meet different agents and to see how they work.
How is a CMA prepared?
First, an agent will walk through the home you're thinking of buying. The agent will point out needed improvements that you might have to pay for after purchasing the home, or that you may ask the seller to address before buying the home.
Second, the agent will research information about comparable properties in the area, usually using a real estate industry resource called the Multiple Listing Service. This includes:
- Properties that have sold and closed within the last 12 months
- Active listings – properties currently for sale
- Pending sales – listings that have sold but not yet closed
- Expired listings – properties that did not sell during the listing period
- Lastly, the agent suggests a probable selling price. Don't be surprised if a CMA results in a price range rather than a set price, particularly in markets were there are price differences due to property size, age, architectural style or physical condition.
A completed CMA is presented in the form of a report, which includes the selling price, detailed information about the home, and the comparable properties that were researched to determine its value. Because the price derived from a CMA is somewhat subjective, some agents may include brief statements on the perceived selling points your home.
A CMA is not an appraisal.
A real estate appraisal is a comprehensive evaluation performed by an independent professional appraiser. With a CMA, the agent's experience in the business and familiarity with the local area can affect the accuracy. Typically, a CMA prepared by an experienced agent with good knowledge of the local market is right in line with the home's appraised value. A CMA can therefore be a very useful tool in a real estate transaction.
When buying your car an incorrect price might cost you a few hundred dollars. If you offer the wrong price for a home, you could lose tens of thousands of dollars, or not get the home of your dreams. Do your homework and ask a real estate professional for a Comparative Market Analysis to ensure you get the most value for your money.
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