As a home seller, one of the first things you want to know is the value of your home. Your agent often gladly offers to provide a "free service" to create what is known as a CMA (aka Comparative Market Analysis). This service is actually very sophisticated an extremely important in determining the potential pricing of your property to sell. Let's start with defining what a CMA is.
What is a CMA?
It is NOT an appraisal! A CMA is a detailed analysis of recent sales in your immediate area of similar homes. That's the simple definition. As a consumer, you need to understand a few things about what those terms mean. A "detailed analysis" means looking over potentially dozens of homes that meet the criteria for inclusion in the analysis. Some will be a good fit some won't but the details mean looking at everything from the size of the home, to its condition, its location, and myriad other factors.
The term recent sales always means within the last 90 days. This is especially important when pricing a home going into or coming out of the hottest market conditions of the year. If there are not enough comparables sold an agent may go back six months or even a year but we always want the most recent sales as they are the most accurate.
The term immediate area can vary between city and rural areas. In a typical suburban setting it usually means within the same subdivision and ideally within a couple of blocks of the subject property without crossing any major roadways. The closer the comparable sales the better. There can be exceptions made for properties that are either unique or extraordinary and for which no normal comps exist nearby. However, comparable sales for most homes should be in the immediate neighborhood.
What does similar homes mean? It typically means property criteria within 15% of the subject property...your home. For example, if you have a 2000 ft.² home then suitable comps will be homes up to 2300 ft.² and is small as 1700 ft.². However, finding a nearly exact match for home size is always preferred. The same applies to the number of bedrooms, number of bathrooms, lot size, and other criteria. You can't compare a 3000 ft.² home that has been remodeled to a house next door with 2000 ft.² and needing an upgrade.
Key Elements in a CMA
- Recent sales (ideally within the past 90 days)
- Similar size homes (within 15% of size and identical features)
- Similar condition and location (remodels and new are worth more than old)
- Immediate area (within a few blocks of your home)
How does a CMA help me price my home?
When a CMA is done properly, it should give you a valuation within 1-3% of what buyers in the current market will pay. There will be times when the CMA is absolutely right on the mark. As a consumer, the best way for you to interpret the results of a CMA are to make sure that you agree with the comparables used. Just remember the criteria noted above.
Assuming the CMA is accurate you should then choose price which is as close as possible to the projected price in the CMA going higher or lower based on prevailing market conditions and buyer activity. There may be times when pricing high is appropriate such as when the list price sales price ratio tends to be a little lower and sellers need a little negotiating room. There may be times when pricing low is a good strategy because buyer demand is so significant a lower price will drive multiple offers.
Can a CMA be wrong?
YES!...but it's rare. However, just because you don't like the price doesn't mean it's wrong. It could be wrong if the agent doesn't include enough of the right comps. However, this is rare and seldom accounts for a variance of more than a few points. If you feel the value of your home is more than what the CMA recommends, ask the agent to review the comps. Just remember the rules I outlined above so you don't make unrealistic comparisons.
The video below is a discussion by industry experts around the country about what a CMA is. Take a look!