How Does a Real Estate Agent Do a Comparative Market Analysis?
If you're like many people, you know that real estate agents do comparative market analysis reports for their clients every day - and you may even know that these reports, commonly called CMAs, are used to determine how much a home is likely to be worth on the market. But how does a real estate agent put together a CMA, and why does it all matter?
Here's what you need to know.
How Does a Real Estate Agent Do a Comparative Market Analysis?
There are a lot of factors involved in putting together a CMA, but generally, real estate agents follow these steps:
- Check out the neighborhood
- Gather details about the house
- Choose comparable homes
- Make adjustments for differences
- Figure out how much the "sold" price per square foot is
Here's a closer look at each.
CMA Step #1: Check out the neighborhood
Location has a lot to do with how much a home is worth. A five-bedroom home with a swimming pool in Lakewood could be $900,000, but in the middle of Nebraska, the same home might go for $200,000. Even within the same city, different neighborhoods have different demand (and thus, different prices).
CMA Step #2: Gather details about the house
When a real estate agent puts together a CMA, she's reviewing all the details about the subject property. Typically, this involves an in-person visit to gather information, including the home's size (especially its livable space), how old it is, its style, its condition and even its layout. The agent also looks at the home's finishes, landscaping, and upgrades to determine how it stacks up against other homes.
CMA Step #3: Choose comparable homes
Based on teh information the real estate agent has about the subject property, she'll explore similar real estate listings. Ideally, she'll find homes that are nearby the subject property (and in the same school zone) and have very similar features.
CMA Step #4: Make adjustments for differences
Comparing all the homes side-by-side, the agent will make adjustments for differences. These adjustments take the form of dollar values - but not on the subject property. On other, comparable homes. That's because if a comparable home has a feature that's superior to (or inferior to), the agent can adjust fairly - and then that adjustment can change the worth of the subject home.
CMA Step #5: Figure out how much the "sold" price per square foot is
After making adjustments for differences in the subject home and the comparable properties, the agent will divide the adjusted price of each comparable home to figure out its sold price per square foot. Then, she'll get an average of all the homes' sold prices per square foot. Once that's done, she'll multiply the average by the number of square feet the subject property has to find its current market value.
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