October 12th, 2023 at 11:00 am

What is a CMA in real state?

You’re searching for a new house and are ready to enjoy all the benefits of owning a home, and you’ve partnered with a REALTOR® to help you find the perfect property, navigate the offers and negotiations processes, and communicate with home sellers in your area. If you’re curious about what kind of home to buy, read up on buying a fixer-upper vs a move-in ready home and what are tract houses to make sure you know your own real estate goals when entering the market.

When you’re determining your budget or preparing to make an offer, your REALTOR® will likely suggest building a CMA, or a Comparative Market Analysis (sometimes referred to as a comparable market analysis). But what is a CMA in real estate, and how can it help you as a buyer?

In essence, a CMA is a tool you can use to see how a property’s value measures up compared to others. Understanding a CMA is the first step to becoming a more savvy buyer, and this helpful tool will allow you to assess your local market options, determine a homes value, and deliver airtight, fair offers.

All about CMAs

A Comparative Market Analysis is a calculation of property values in your area that compares your desired property—or your ideal, theoretical, comparative property—with similar, recently sold homes nearby.

A CMA typically contains a few major components:

A CMA’s detailed breakdowns of subject property characteristics and their values can help potential buyers establish a budget or determine a fair, competitive listing price. We’ll explore each of these components in more detail in the sections to follow.

How REALTORS® build CMAs

Let’s break down how real estate agents create CMAs. Note that while you can use these steps to prepare your own CMA, a REALTOR® has the resources, real estate market knowledge, and technical know-how to assemble the most accurate and useful competitive market analysis—adding to the long list of reasons to use a real estate agent

#1 Gather comps

Comparative properties, or “comps,” are critical pieces of a CMA. Whether you’re establishing a budget for your ideal home or preparing to make an offer, your REALTOR® agent will start by identifying three similar properties that have sold in the past three to six months in your area. 

A comparable property should display similarities to your ideal property, including:

In addition, they should present information about major systems, such as:

How do REALTORS® gather all of this intel about comps? They can find the inside scoop from a few different sources:

It’s important to note that comps don’t have to be identical to the home you’re interested in to be useful; a similar home should do the trick. REALTORS®, including our California realtors, will price the differences between your ideal property and the comparative homes in your CMA to determine the property value.

#2 List and price differences

Once your REALTOR® has gathered comps, the next step is to identify differences between these comparables and the home you’d like to purchase. 

Let’s explore an example in chart format:

CharacteristicIdeal PropertyComp #1Comp #2Comp #3
Square footage2,8002,3562,9002,589
Age10 years5 years9 years15 years
Lot size0.5 acres1.0 acres1.5 acres0.5 acres
Roof age2 years5 years4 years10 years
Sale price$580,000$630,000$595,000

We’ve only listed a few characteristics above, but a full CMA property search will typically compare many more. 

Once your REALTOR® has created a chart like this one, they’ll price out the differences between your ideal home and the comparable sales. This is where their professional expertise is particularly useful in the CMA-building process. 

Using current market data, construction values, and more, REALTORS® determine a flat price per characteristic that they can use to adjust each home’s sale price. Here are some theoretical values:

Lot size$50,000/acre
Roof age$5,000/year

These flat prices are critical for the next step—adding or deducting elements from each home’s sale price to normalize values and help buyers determine an appropriate offer.

#3 Add and deduct differences 

To establish a fair asking price or budget for a buyer, REALTORS® add and subtract the flat prices of individual characteristics to simulate each home value if it were identical to the ideal property. 

Let’s return to our sample CMA to illustrate this point:

CharacteristicIdeal PropertyComp #1Comp #2Comp #3
Square footage2,8002,3562,9002,589
Age10 years5 years9 years15 years
Lot size0.5 acres1.0 acres(+$25,000)1.5 acres(+$50,000)0.5 acres
Roof Age2 years5 years(-$15,000)4 years(-$10,000)10 years(-$40,000)
Sale Price$580,000$630,000$595,000
Sum of Adjustments+$3,500+$40,000-$46,500
Adjusted Price$583,500$670,000$548,500

This process helps REALTORS® and buyers establish an offer range based on fair market values. Per the example above, the buyer should expect an appropriate offer for their ideal home value to fall between $548,500 and $670,000. 

#4 Weigh the comps to determine fair asking price

You’re probably thinking, “The range above is massive—how can buyers make informed decisions about an appropriate offer with a +/- $121,500 margin of error?”

This is where weighting comes into play. A real estate professional will weigh each property’s sale price based on the number of differences to determine a fair home worth.

In the example above, Comp #1 had four differences from the ideal property, Comp #2 had two, and Comp #3 had three. In theory, the property with the fewest differences from a buyer’s ideal property is the most desirable. 

So, in a real estate CMA calculation, the properties with the fewest differences are weighted the highest, and vice versa:

PropertyNumber of DifferencesWeight MultiplierAdjusted PriceOffer Portion
Comp #140.2$583,500$116,700
Comp #220.5$670,000$335,000
Comp #330.3$548,500$164,550
Recommended Offer for Ideal Property(or the sum of the Offer Portion Column)$616,250

Based on the weighting process, a REALTOR® in this scenario would likely suggest an offer of $616,250, or a similar price. 

Challenges in creating a CMA

Creating a Comparative Market Analysis (CMA) is as much an art as it is a science. The task requires a balanced blend of data analysis, market intuition, and local insights. However, it’s not without its challenges. Fortunately, REALTORS® are equipped with the tools and knowledge to streamline this process and navigate various challenges, such as:

CMA vs. Appraisal

What’s the difference between a CMA and an appraisal? 

Like a CMA, an appraisal is prepared by a paid, experienced professional to determine the fair market value of a property. Appraisers use housing market indicators, comparable homes, industry knowledge, and area-specific information to determine a home’s value. 

So, how is this different from a CMA? There are three key variations:

Why use a CMA?

While we’ve touched upon the primary purpose of a CMA—to help buyers determine a fair offer for a home they’d like to purchase—a CMA can serve two additional purposes:

  1. Establishing a budget: Before your search begins, you’ll have to establish a budget. Instead of establishing comps for an existing property, REALTORS® can seek comps that fit your non-negotiables list. For example, that may include how many bedrooms and bathrooms you need, your ideal lot size, and other characteristics. If you can’t afford the adjusted, weighted price of the ideal home in your area, a CMA can help you adjust your search criteria to find more affordable properties.
  1. Aiding negotiations: Before a seller accepts your offer, they’ll likely negotiate—especially if you’re making an offer under the asking price. Comps provide a detailed list of values for elements of your desired home, giving you hard figures to negotiate with. 

Let’s explore an example. You’re negotiating with a seller for a home that has a 10-year-old roof, but your ideal roof for a home is only five years old. If the seller doesn’t accept your initial offer, you can use the old roof as a bargaining chip, asking the seller to either: 

  1. Accept an offer that deducts the price of a roof replacement
  2. Replace the roof and include the replacement cost in the final sale price

Can you prepare a CMA yourself?

While you could prepare a CMA on your own, a REALTOR® is more qualified to create an accurate, thorough CMA. This is true for several reasons:

Tips used for crafting an effective CMA

Building an accurate CMA requires diligence, foresight, and a deep understanding of both the tangible and intangible factors influencing property values. Here are some pointers to keep in mind as a real estate agent, or to ask about when partnering with a real estate agent:

Maintain objectivity: It’s essential to remember that a CMA’s purpose is to offer an objective perspective. Steer clear of allowing personal biases or attachments to cloud the report.

Find a new home with Berkshire Hathaway HomeServices California Properties

Whether you’re buying your first home and wondering do first time home buyers need a down payment, flipping your seventh property, or seeking more space as your family expands, a CMA is part and parcel of the homebuying process. Your ideal REALTOR® will prepare a CMA that helps you make a perfect offer on your next home. 

Berkshire Hathaway HomeServices California Properties is the resource of choice for homebuyers throughout the Golden State. 

Our expert agents have the tools, industry know-how, and local connections to find your perfect home, make an airtight offer, and advocate for you throughout the negotiation process. 

If you’re ready to buy—or sell—a California Properties REALTOR® is your number one choice for a real estate partner. 

Sources: US News, US News

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