What Is CMA in Real Estate? (With Elements and How to Conduct One)
By Indeed Editorial Team
Published May 25, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
The value of a property is a vital consideration at different stages of interacting with a property. Various factors influence a property's value, including the location, the available resources, the age of the building, and the architectural style. Understanding how to conduct a comparative market analysis can help you develop accurate estimates during the buying or selling stages of real estate.
In this article, we consider "What is CMA in real estate?", explore how it works in estimating property value, outline the elements that make it up, and highlight how you can conduct the analysis as a real estate agent.
What is CMA in real estate?
If you're wondering, "What is CMA in real estate?" It's a tool or process for making compelling estimates of property value to prospective buyers and developers. A comparative market analysis arrives at a property value by comparing the value of properties in the same vicinity as the concerned property.
This comparison can also apply by placing a property side-by-side with properties with similar features, size, construction style, age, condition, and amenities. It's common in the real estate industry to refer to comparable or similar properties as a comp.
A comparative market analysis is usually a single sheet detailing the features, peculiarities, and other information relating to a property. By listing such features, you can use the analysis to provide insights and give prospective buyers a full view of properties in an area or real estate market. This analysis is also an effective way to determine a property's value as it usually deals with property sales and purchases within three to six months.
How does a comparative market analysis work?
Finding properties similar to those you're evaluating is essential to understanding the CMA in real estate. A comparative market analysis considers the value of neighbouring or similar properties to determine an optimal property value that aligns with the average real estate value within a locality. This analysis can also serve as a reliable way to arrive at a competitive number to offer your clients when they plan to attract buyers.
Properties that form parts of the analysis have features such as sales price, square footage, description, condition, age, structure, location, and construction style in common. Because the subject of a comparative market analysis usually aims to arrive at property value through comparison, the reports are usually informal.
You can conduct your analysis by listing three to five comps on a spreadsheet. You can also quantify the value of properties within a vicinity by estimating an adjusted price per square foot of the property.
Elements of a comparative market analysis
While the typical comparative market analysis usually takes the form of an informal report, an effective analysis contains these elements:
Comparables or comps: These are properties similar to the one undergoing valuation. Such properties form the subject of comparative market analyses by considering similar features like style, age, size, and condition.
Age: The age of a property or building can add to its value in a vicinity where properties are relatively younger. While age can influence the value of a property, it's easier to compare properties where other properties share the same age bracket and conditions.
Condition: The state of a property's amenities like heating, plumbing, and painting affects its value. For instance, where a property's condition is lower than those around it, the value is likely lower than the neighbouring comps.
Style: This is a factor that considers a property's architectural style. This accounts for a property's architecture, age, construction material, and condition.
Square footage: This is the size of a property, and it takes into account the living space, including rooms. This figure varies across properties as some give more space to their lots and yards over buildings.
Yard size: The size of a property's yard is similar to considering other special features such as patios, garages, and basements. The presence of a large yard adds value to a property and comes into consideration when determining property value.
Features: These are the amenities and fixtures available within a property. This also serves as a connecting factor between a property and its comps, including the number of bedrooms, heating and cooling facilities, and the availability of chimneys, fireplaces, or pools.
Sales price: This can be the average price of properties within a vicinity. This figure is usually an average that reflects the value of various properties.
Adjusted sales price: In some instances, the sales price of properties may not reflect other costs relating to the property's maintenance and value. These costs can include renovations, special features, levies, and facility maintenance costs.
Adjusted price per square foot: After adjusting the value of a property to reflect the additional costs and unique features that contribute to its value, you can derive the value per square foot. You can use this figure to calculate the value of a property with a different size or structure from its neighbours.
How to conduct a comparative market analysis
Consider following these steps when valuing a property using a comparative market analysis:
1. Observe the property's vicinity
When conducting valuations for sales or to help a client determine a competitive price for their property, it's essential to observe the property's location. The presence or lack of certain amenities within a vicinity usually influences the value of individual properties. For instance, features like security, road networks, restaurants, recreational centres, and schools are usually communal. These features contribute to the value a property attracts and is an important factor to consider when conducting comparative market analysis.
Buyers and clients are likely to show greater interest in neighbourhoods with properties closer to schools, a high level of security, a soothing ambience, sidewalks, and parks. It can also improve your efficiency as a real estate agent to consider the features that clients pay attention to when looking for properties. The presence of these features within a vicinity can improve your sales.
2. Outline property details
Conducting an efficient comparative market analysis requires visits to the properties you're estimating their value and those you're using for comparison. By visiting these properties, you can acquaint yourself with each property's features, facilities, and peculiarities. With these details, you can form a reliable comparison base with properties by identifying common features, distinguishing features, and the value of such features.
Property details to observe include the number of rooms, the size of the kitchen, the presence of a pool, basement, fireplace, or patio, the condition of fixtures, heating and cooling facilities, and the property's layout.
Related: Attention to Detail
3. Find similar properties
Paying attention to the features and condition of the property you're analyzing helps you make connections and comparisons with similar properties. These properties that share features with the property under analysis are comps. When selecting comps, it's helpful to consider properties within a mile of the property you're analyzing. In addition to the distance, it's efficient to consider three to five comps with recent sales within three to six months. It's important to consider the sale's timing to arrive at a recent and accurate property value.
4. Identify unique features and adjust property value
Properties with unique features or facilities usually come with higher value. You can arrive at a more accurate property value by considering these peculiar facilities and features and assigning them respective values. For instance, if a property comes with a pool, an extra bedroom, patio, or basement, you can calculate the cost of acquiring these features and isolate them when estimating the property's value. Adjusting property value makes your comparative market analysis more effective as you recognize every factor contributing to a property's overall value.
When comparing these features and adjusting values, you can categorize comps as having inferior or superior qualities to the property you're analyzing. For instance, a property with four bedrooms is of superior quality if the property you're analyzing comes with two bedrooms. You can adjust the value for this comp by subtracting the value for two bedrooms from its overall value to arrive at a more accurate value compared to the property you're analyzing.
5. Calculate the property's selling price per square foot
After adjusting the value for the property you're analyzing and the neighbouring comps, you can arrive at a more accurate comparative value for properties in a vicinity through the selling price per square foot. Deriving this figure involves dividing the adjusted value of a property by its square feet. This figure offers a more accurate picture of the property's value and considers variance in sizes and structures.
6. Outline a report
While a comparative market analysis is a more informal analysis of a property's value in comparison to appraisals, it results in a reliable report. You can use various software to compute the result of your analysis, including spreadsheet applications. Comparative market analysis reports usually contain cover pages, pictures of comps, their features, and charts representing property value.
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