Understanding a real estate Comparable Market Analysis (CMA)

At its core, real estate is all about valuing properties. Sellers want to list their home for as high as possible, and buyers want to get a great deal on a property that will only go up in value.

So if it all comes down to value, how can we gauge property value without paying for an extensive appraisal?

I’d like to introduce you to the Comparable Market Analysis, or CMA as you’ll commonly hear it called. CMAs are professionally generated value estimates based on hard facts of home sale data – not speculation or subjective guessing. It follows a particular format and structure that is similar – but not identical to – a more intensive paid appraisal that banks or lenders conduct.

CMAs have a lot of utility for both buyers and sellers. For sellers, it's the first step to getting a realistic range of what price your house may sell for in today's current marketplace. It’s important to note that it’s not a definitive “answer” as to what your home is worth, but a possible range depending on certain tangible variables. With a CMA, homeowners can see a general range of what their home is worth and also gauge the competition if they decide to sell.

For buyers who are interested in a property, a CMA gives them access to hard data for which they can base their price if they decide to write a purchase offer. It also confirms or double checks if the listing price the seller chose is accurate, realistic, and fair in today’s rapidly evolving buying and selling environment.

But if you’ve ever received a CMA – possibly in an email from your Realtor – it might just look like a lot of data and numbers at first glance. So let’s dissect the parts of a CMA one by one and explain how to read it properly.

Here’s what you’ll see in a CMA:

-On the cover of the CMA, you’ll see the subject property address listed along with an overhead photo of the dwelling and its surrounding neighborhood from GoogleEarth.

Where do these properties come from and why were they chosen for this CMA? The real estate agent that produces this CMA for you hand selects properties that they think are similar to the house we’re trying to value. That means we’re comparing single family residence to the same, condo to a condo, etc. and not comparing a halfplex to a duplex, etc.

Ideally, the properties in the CMA that we’re comparing to have sold recently – usually with 6 months or less as a rough parameter. The more recent the home that sold (or is pending or listed, etc.), the more relevant that price will be for comparison purposes.

Likewise, we want to compare the subject property to homes that are in the same neighborhood, as the price for the same 2-bedroom, 1-bath, 1,000 sq ft. structure could either be dirt cheap or sky high depending on the quality of the neighborhood. So to be as accurate as possible, we want to compare to homes that are in the same area, usually within half a mile or so, with most credence given to the homes that are on the same street or closest.

It's important to note that this isn't a perfect science. Sometimes, there are dozens of comparable properties to choose from that are right on the same street and have sold within a couple of months. Other times, you may have to go a mile or two out and further back in time to find enough similar listings for an accurate CMA.

But what we don’t do is “cherry pick” certain properties just to justify a higher or lower price – that doesn’t do the buyer or seller any good and just wastes everyone’s time because the results will be skewed.

-You’ll see a Map Of All Listings which displays pins on all of the listings the CMA is based on (properties as similar as possible to the subject property.) These will be color coded as active, pending, or sold listings.

-The Summary of Comparable Properties then breaks down those properties, grouped by active, pending and sold listings. Of course, sold listings hold more weight when factoring a CMA because their sold price is a matter of fact, where pending listings might sell for less. Since anyone can list their home for any price, active listings bare the least influence on the CMA.

In this Summary of Comparable Properties, data like the number of bedrooms, bathrooms, year built, square footage, list/sold price and sold date are all documented for each property.

-In the next section, a full CMA will go into further detail in an expanded view of each property with more information like year it was built, the lot size, photos, and agent remarks that are useful for understanding repairs that need to be made, upgrades that could boost the value, whether it’s a rental property, and many other comments.

-Comparable Property Statistics

Now we’re getting into the portion of the CMA that gauges the hard data of the subject property lined up with our chosen comparable properties. 

For each of Sold, Pending, and Active listings, the lowest, highest, and average price will be documented, as well as the average Days On Market. This information will be displayed as a bar graph and then also charts.

So now you have a thorough statistical analysis of your subject property compared to sold, pending, and active listings that are in the same neighborhood and approximately the same size, type, bedroom and bath composition, etc.

You know which listed homes sat on market for a long time before selling, and which were snatched up by eager buyers and sold quickly.

With all of this data displayed in several different forms side-by-side, you can easily judge you’re the subject home’s potential value based on a tight range, no matter if you’re selling your home or looking to buy one and want to make sure the price is fair.

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Do you still have more questions about CMA's or your home's value? Contact us! 

20 Things That Will Drop Your Home's Value

1. Undesirable location

You’ve heard that the three most important factors in any home’s value are location, location, and location, right? Unfortunately, the flip side of that is true; if you live in a declining neighborhood, or even in a house too close to a busy street, a noisy business, railroad tracks, an airport, etc. your value will surely suffer.

2. Fire or flood inside the home.

Natural disasters are one thing, but if your property has suffered flooding or a fire that originated inside the house because of human error or faulty systems, future buyers will surely take not – and the price will drop. It’s hard to overcome the stigma of past flooding, especially because of the potential for rot, mold, and damage behind the walls or under the floors. 

3. Natural disasters

Damage from hurricanes, earthquakes, and flooding all need to be disclosed when you sell your home – and could raise doubts about the present condition, therefore affecting the value. If your home was in or damaged by a natural disaster, be sure to keep detailed records from insurance adjusters, contractors, appraisers, etc. to satiate future buyers.

4. No garage or inadequate parking

If every house in your neighborhood has a two-car garage and you only have a one-car garage, or just an outdoor carport, your home’s value could drop significantly. Of course there are some neighborhoods where everyone parks on the street, but generally your home needs to be consistent with what is standard in that community for the price to remain intact.

5. Noisy neighbors (and their pets)

Does your neighbor blast country western music at ear-splitting volumes until 2 am every night? Do you live next to a breeder who is raising 20 very vocal Chihuahua puppies? Or did a U-Haul truck just pull up and a college fraternity start unpacking? Even though it’s own out of your control, reports show that having noisy neighbors can drag your home value down by 5 or even 10%.

6. Bad roof

There are many components of a house that may “turn off” buyers if damaged or outdated – electrical, plumbing, and heat and air among the big ones. But a roof that’s past its prime or already leaking can really scare off buyers – even more than the cost to fix the roof would dictate if they looked at it rationally.

7. Unnatural deaths or homicide

Did your home belong to Dexter before you bought it? A homicide, suicide, or any unnatural deaths or violent events on the property absolutely have to be disclosed by the seller, and can really drop the value. In fact, studies show that a non-natural death in a home can drop the value 10-25%, and even being too close to that house or on the same street can sink neighboring home values by up to 3%.

8. A subpar school system

Who buys homes in most middle class suburban neighborhoods? The majority of homes are bought by young couples that hope to start families, or young families who already have children, and that means the quality of the local schools is paramount. A great local school system can boost demand and increase your home’s value accordingly, while a middle-of-the-road school system will neither hurt nor help your value. But a notoriously bad school system in your area can definitely collectively sink your neighborhood’s values.

9. Huge (or cheesy) billboards

Of course businesses need to advertise to stay competitive, but if a local car dealership or casino just constructed a billboard in or near your neighborhood that dominates the skyline, you may experience a sinking feeling. And if that billboard happens to be advertising a strip club, political candidate, laxative brand, or a PSA for drug addiction, that sinking feeling will apply to your wallet as your home price sinks like a stone.

Don’t believe me? A study in Philadelphia found that homes within 500 feet of a billboard were worth $30,826 less on average at the time of sale than others farther away.

10. Low ceilings

You don’t need to necessarily need to have soaring vaulted ceilings in your home, but even if your ceilings are just a couple of inches below average, potential buyers could perceive your home as cramped, claustrophobic, or smaller than its actual square footage.

By the way, most standard ceilings in the U.S. are right about 8’ high, but some communities adhere to the national IRC building codes that allow for minimum 7 foot ceilings in living spaces. But the newer the construction and the bigger the living area, the higher the ceiling should be to maintain proportions.

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Subscribe to this blog or follow us on social media and look for part two of this blog, where we cover the next ten things that will drop your home's value! 

Answering the 15 most common questions about real estate appraisals.

What is an appraisal?

An appraisal is an estimate or professional opinion of value based on a comprehensive inspection of the subject property, and then comparing the findings to similar properties sold in the same neighborhood. The purpose of the appraisal is to define the market value of the property – what a reasonable sales price would be – at the present time.

What are the three parts of the appraisal process?

There are generally three parts to any appraisal process:

1) The inspection.

After the appraisal is ordered, a licensed appraiser comes out to the subject property and inspects it, colleting data they’ll use to determine value.

2) Researching comparable properties.

Post inspection, the appraiser researches similar homes that have sold or are active or pending listings to gauge a base of market value. The appraiser then adjusts that value based on particulars of the subject property and other macro factors.

3)The final appraisal report.

The appraiser produces a final report that details his or her findings and issues their final value estimation.

When do you need an appraisal?

An appraisal is ordered every time there is a mortgage loan issued (refinance or purchase), a sale of a home, and sometimes in other circumstances, like a divorce, total asset evaluation, or loan modification. 

Who owns the appraisal?

The party who ordered the appraisal owns it, and the appraisal company cannot legally release any of the information or the report to anyone else without written authorization.

How do they value your property?

The goal of an appraisal is to calculate the actual market value of your home. They do this using several method of valuation, including the comparable sales price approach. With that, the appraiser compares your home to others on the market that have sold recently, called “comps” or comparables. Ideally, appraisers compare your home to identical homes that have sold in your same neighborhood within a few months. If those criteria don’t exist, they start comparing to similar homes a little further out that have sold within the last 6 months or so. Based on this data and an inspection of your home, they make adjustments and come up with an estimated appraised value.

What market factors go into finding your home’s value?

Appraisers look at a bevy of factors to determine a property’s fair market value. That number is a snapshot of value at that exact time, but also takes into account the future benefits and ongoing value of the property. Those include economic, social, governmental, and environmental factors that could exert influence on home values in the area.

Appraisers look at 4 macro factors:

1) Demand:

The desire or need for people to buy and live in such a home.

2) Utility:

The specific home’s ability to fit the needs of future owners.

3) Scarcity:

The amount of other homes in the area and on the market that could fit those needs, i.e. the competition.

4) Transferability:

The simplicity and ease with which the property can be sold or transferred to another owner.

What do appraisers look when they inspect a home?

Foundation.

Exterior condition of your home.

Roof composition, age, and condition.

Square footage.

How many bedrooms and bathrooms.

The age of the home.

The general condition.

Amenities.

HVAC system.

General maintenance.

Home improvements and remodels.

Additions.

Windows.

Landscaping.

Pools, fireplaces, outdoor living, and permanent extras.

Are the appraised value and price the same?

Remember that appraised value is a professional opinion what the home is worth on the current market, but in certain circumstances, a buyer and seller may agree on the a price that is higher or lower than the appraised value. The appraised value is not necessarily the price of the home, but a good pinpoint of value.

How long is an appraisal good for?

An appraisal is valid for lending purposes for up to a year after it’s issued. But usually after six months has passed, borrowers may consider getting an updated value. They can do that with a re-certification of value through the appraiser, without having to order a whole new report.

Why do lenders always need an appraisal?

Lenders require an appraiser because it’s the best way to ensure their investment is sound. If the property did not hold enough value or had serious flaws or problems, the mortgage lender would end up losing a lot of money if the borrower defaults and they have to take the property back.

What can you do to influence the outcome?

In theory, the only thing you can do to raise your home’s appraised value is to keep the property in good condition, make all necessary repairs, and possibly remodel or upgrade. But it can’t hurt to keep your home clean, uncluttered, and looking neat when the appraiser comes to inspect. Even better, make a list of any repairs or remodels you’ve done that could possibly improve the value, including any high-end or brand new materials or appliances. Your realtor could also supply a list of accurate comparable properties for the appraiser to consider, which may help your case.

Is the assessment the same as an appraisal?

Assessed value is actually issued by the municipality in order to gauge how much to charge for property taxes. Most areas require a reassessment of properties every ten years or less to account for rising prices and market factors.

What kinds of appraisers are there?

While appraisers go through rigorous training, examinations, and state licensing, not all appraisers are created equal. There are residential real estate appraisers who cover single family homes up to a million dollars as well as multi-family buildings up to four units, certified residential appraisers who can value properties over one million dollars, and certified general appraisers who can also value commercial properties.

Who’s interest does the appraiser represent?

Appraisers are neutral third-party professionals that base their findings solely on independent market data.

Are appraisals standardized?

Most appraisers across the country use standard forms, the most being the 1004, which is the appraisal report for residential real estate used by Freddie Mac and Fannie Mae, the two largest mortgage backers.