What’s a Comparative Market Analysis (CMA)?

When preparing to buy or sell a home, you might wonder how in the world a piece of property gets its price tag. Despite what the internet might tell you, the number isn’t determined by the overlords at Zillow.

Pricing a home actually starts with a comparative market analysis (CMA). Yeah, it’s a pretty boring-sounding real estate term. But not understanding what it is and what it means for you as a buyer or seller could cost you thousands or even tens of thousands of dollars. So it’s actually a pretty important term to add to your vocabulary. That’s why we want to break it down for you.

Let’s get started!

What Best Describes a Comparative Market Analysis?

A comparative market analysis is a common method used to set a home’s price. The analysis offers a suggested price range for a home that’s ready to sell based on the (adjusted) sales prices of several comparable homes (or comps) that recently sold.

Okay, great. But how exactly does that help home sellers and buyers? Glad you asked!

• Sellers: A CMA helps you set a home price that’s attractive to buyers and ensures you don’t leave money on the table by accidentally pricing it below market value. It also helps you avoid overpricing, which could leave your home sitting on the market for too long (making it harder to sell).

• Buyers: A CMA helps you verify that a home up for sale is within a reasonable price range, and can guide you in making a competitive offer that beats out other potential buyers.

How Does a Real Estate Agent Do a CMA?

Experienced real estate agents or brokers know how to do a CMA on a house using detailed market data and local expertise. Since these professionals aren’t emotionally or personally attached to the home being sold, they won’t overlook flaws or exaggerate positives, which makes for a strong and unbiased CMA.

Now let’s dig into the steps agents follow to do a CMA:

1. Gather details on the home being sold.

First, a real estate agent gathers specific details that relate to the home’s value, not things like “the front door is red.” Details could include:

• Location (address)
• Size (square footage of lot and property)
• Number of bedrooms and bathrooms
• Age (year built)
• Type (single-family home, townhouse or condo)
• Materials
• Condition (upgrades or renovations)
• Unique features (garage, views, pool)

2. Find comparable homes (comps).

Next, the agent collects data on other houses that are comparable to the one being sold. Remember, the cool kids call these comps.

Good agents look for comps that sold recently—ideally within the past 3–6 months. They also find comps that share as many details as possible with the home being sold. For example, comps should be located in the same neighborhood (or as close as possible) and share a similar size, age and condition as the home being sold.

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Your agent should also take note of any housing market factors that occurred during the time each comp sold. For example, the answer to any of these market questions could’ve influenced the comp’s sales price:

• Were home prices rising or falling?
• Were interest rates higher or lower?
• Was it a buyer’s or seller’s market?
• Was it sold during winter or spring?
• Were there any local economic conditions at play?

Most importantly, your agent will include every comp’s final sales price, which will be needed for the next step.

If your agent has trouble finding recently sold comps, another option is to look into active listings or pending sales (homes that are under contract but haven’t closed yet). You could even select expired or withdrawn listings to help avoid setting an overpriced range.

Tips for finding the best comps:

• Look for homes that are most similar to the home being sold.
• The more recently sold, the better.
• Choose homes that require the fewest adjustments (we’ll explain this more in Step 3).

3. Adjust comp pricing based on differences to the home being sold.

In this step, your agent will compare the data on the home being sold to the comps and then adjust each comp’s sales price based on the differences. Here are some examples of what that might look like:

• Location: Adjust (by adding or subtracting from the comp’s sales price) based on how it differs in proximity to schools, parks or noise factors compared to the home being sold.
• Size: Adjust based on differences in square feet.
• Condition: Adjust for upgrades, renovations or deferred maintenance.
• Unique features: Adjust for garages, views, pools, etc.

Adjustments also need to be made based on the housing market factors listed earlier, which might’ve led to a higher or lower sales price.

Don’t worry, we’ll cover an example of this math-y part later.

4. Determine a fair price range for the home being sold.

Your agent will then use the adjusted comp pricing to help you set a reasonable price range on the home being sold. For example, if there are three comps with adjusted values of $450,000, $460,000 and $470,000, you could reasonably set a price range of $450,000–470,000 for the home being sold.

5. Organize the data into a CMA report.

After the comparative market analysis is done, your agent will organize the findings into an easily shareable report. While some local areas might have rules on what needs to be included in one, a CMA report generally doesn’t have to follow a standard format. Most CMA reports include:

• The address of the home being sold
• The addresses of three to five comps
• Photos of each property
• A description of each property (e.g., elevation, floor plan, number of bedrooms and bathrooms)
• The square footage of each home
• The sales price of each comp
• Dollar adjustments for any differences between the comps and the home being sold
• A reasonable price range for the property being sold

Keep in mind, it’s important to have a current CMA report when doing a home sale because housing markets change rapidly. And with those changes, it’s easy for a CMA report to get outdated in just a few months.

And . . . that’s it! You just learned how a real estate agent does a comparative market analysis without breaking a sweat. Good job.

What’s a CMA Example?

Okay, now let’s see how an actual example of a CMA might play out. Imagine you’re selling a home. You want to put a reasonable price tag on it, so you work with a real estate agent to run a CMA. After your agent gathers data on three recently sold comparable homes, you notice they have slight differences in square footage and number of bedrooms compared to your home.

Check out the CMA example below to see how your agent might make adjustments for those differences:

Your Home

• 1,500 square feet
• 3 beds
• 2 baths

Comparable Homes

Notice how your agent adjusts the sales price of the comps based on how they differ from your home:

• Comp 1 is 100 square feet smaller than your home, so your agent adds $10,000 to account for the higher value of your home’s extra square footage.

• Comp 2 is 100 square feet larger than your home, so your agent subtracts $10,000 to account for the lower value of your slightly smaller home.

• Comp 3 has one less bedroom than your home, so your agent adds $15,000 to account for the value of an extra room.

After price adjustments, the comps range from $390,000 to $410,000. That means you could reasonably sell your house for any amount in that range. You might decide to take the average and list your home for $400,000.

Keep in mind, accurate price adjustments require understanding both the local real estate market and buyer preferences in your area. That’s why it’s vital to have an experienced real estate agent on your side.

What’s the Difference Between a CMA and an Appraisal?

Both a comparative market analysis and an appraisal are ways of determining a home’s value. But here are the key differences:

• CMAs are less formal and can be done by a real estate agent, broker, seller or buyer. The purpose of a CMA is to establish a starting home price to be used during negotiations.

• Appraisals are more formal and require a state-licensed and certified appraiser. The purpose of a home appraisal is to help mortgage lenders approve loan amounts for buyers.

Is a CMA as Good as an Appraisal?

No, CMAs are seen as less accurate and less official than home appraisals. Remember, an appraisal is done by a state-licensed appraiser, and the process is highly regulated. Since mortgage lenders require home appraisals to be done before they’re willing to dish out a loan to a buyer, the results of an appraisal could easily make or break a home deal.

Also, appraisals might be the only option for low-volume real estate markets where home sales are few and far between.

Meanwhile, a comparative market analysis is more of a guiding tool that can help buyers and sellers settle on an agreeable sales price.

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