When you start thinking about buying or selling a house, you might feel like you need to carry a special real estate dictionary around with you to understand all the different terms you’ll hear throughout the process. Where else would you run into words like amortization, contingencies, dual agency, escrow, or private mortgage insurance?
This is especially true when you try to put a price on the house you’re selling or try to determine if the house you want to buy is worth what the sellers are asking. You’ll hear phrases like assessed value and appraisal tossed around, but what you’re really looking for, at least in the first phase of selling your house, is a comparative market analysis.
Defining a Comparative Market Analysis or CMA
A comparative market analysis, or CMA, evaluates similar homes that have recently been sold in your area. These properties, called comparables—or comps—will match as many of the features and characteristics of your home as possible, from the number of bedrooms and bathrooms to the square footage of the home and the land it sits on.
Whenever possible, we’ll look for similarities with homes in the area that have recently sold or are currently listed, such as homes of similar age or architectural style. The information from these comps is then used to determine the best possible price for your home—either the one you’re selling or the one you’re thinking about buying.
How to Get an Accurate CMA
Now, how accurate can a CMA actually be? The closer the comparables are to the house in question, the more accurate the valuation will be. And by “closer,” we really do mean distance, at least as the first and most important variable in the comparative market analysis.
The smaller your sample area when finding similar homes, the more accurate your CMA will be. The house next door shows up as sold within the last three months? Awesome! That’s about as close as it gets.
Within urban and suburban areas, finding comparable sales within a small radius is usually a pretty easy task. Most of the time, a Realtor can find what they need within a few short city blocks. In suburban areas, the comps are usually pulled from within the same subdivision. Rural areas, however, may require additional searching within up to five miles from the home in question.
Then next most important criterion is when the comparable properties were sold. Again, the closer to the current date, the better. Something that closed yesterday? That’s perfect! Ideally, anything within the past three months will be acceptable, but the real estate market can be a little fluid. The closer you are to the sale date, the more accurate your estimation will be.
Working in the Features
Let’s break this down a little bit with an example. Let’s say you’re ready to list your three-bedroom, two-bathroom house. It’s around 1800 square feet and sits on around one-quarter of an acre.
Sounds like several houses here in Nashville, right?
Let’s say it’s also nearly a hundred years old, but it has several updates throughout. This might make finding exact comps tougher. Fortunately, this house you’re selling is in the heart of East Nashville, where many of the houses are much like the one you want to put on the market.
The important thing to remember is this: for the most part, the average price per square foot is what most Realtors will look for. This gives a very broad look at what your house might be worth—or the house you’re hoping to buy. Does that mean your brand new kitchen or won’t add value to the house?
Well, it could. But remember: A really good Realtor knows how to find the perfect buyer for your home. With the CMA as a solid estimate in mind, we then work to market your home to people who are looking for those features and are willing to pay for them. The buyers who want a brand new kitchen will be looking at other homes that also have brand new kitchens, so the comps will hold a lot of water. Buyers that want a blank canvas they can paint their own lives on…well, they might not be as swayed by all the incredible features of your home, tending instead to seek out comparable homes with room to make the improvements they find most important.
The CMA just gives us a starting point to determine the best possible price range for your home. We’ll work together from there to set a price that everyone will be happy with.