Any company that wants to launch a product or service on the market has to look around and see what is already available and at what sales price. Before the product enters the market, professionals spend hours on market analysis, examining similar goods trying to find both similarities and differences. Thanks to this process, it is easier to determine strong and weak features of a product and come up with a realistic and reasonable pricing strategy, as well as the marketing strategy that will attract the target client group.
Although the world of commercial analyses and focus groups that help to estimate the market value of a cleaning solution might seem distant, a sales comparison approach is crucial in the process of listing a property and it definitely makes the life of a real estate agent easier!
A detailed report on the comparable properties on the market and their sold price is called a Comparative Market Analysis (CMA report) and it helps to determine the current market value of a property by comparing it to other houses that sold recently. In this article we will present crucial information for real estate agents when it comes to making a coherent and well-informed CMA that will lead to placing a competitive offer.
What is a Comparative Market Analysis in Real Estate?
Estimating the asking price of a property can be a hard nut to crack even for an experienced real estate agent, given the market’s ever-changing nature as well as the fact that there are some serious expectations on both seller’s and buyer’s ends. Being able to name a fair and well justified asking price is the basis of every successful agent career and, most importantly, it builds trust among your prospective clients. So how do we do that? Let’s talk about comparative market analysis in real estate and how to get the best out of it.
In real estate, the Comparative Market Analysis means comparing the property for sale against other properties in the neighborhood (or a comparable area) as a part of negotiating the estimated fair market value by a real estate professional. The comparable sales will work for any agent as a compass in the curvy, hard road to assessing the satisfying price per square foot and discovering the property’s fair market value.
What is the Best Description of a Comparative Market Analysis?
Comparative Market Analysis (CMA) is a business tool that will help you determine the price of a property for sale before you list it. It is based on comparing the property you are going to sell to different ones that recently sold in the same or neighboring areas and share similarities in square footage, conditions, features and sale prices. Based on that, you will be able to calculate the average price of a property sold at a given time and place.
The most important thing in Comparative Market Analysis is timing – although numbers speak for themselves, it is the real estate agent who has to make sure that the properties you are comparing the house to have been sold in recent months (preferably not more than three months ago) and see whether there are any major changes on the local market going on.
Comparative Market Analysis – What Real Estate Agents Should Take Into Account?
The recently sold homes you put in your CMA must be comparable properties when it comes to the square footage, type, condition, the number of bedrooms and bathrooms, lot size, amenities within the same neighborhood (e.g same school district, public transportation, supermarkets within walking distance), property’s features (parking space, terrace, finished basement, swimming pool, fireplace), and its condition as well as the curb appeal. Their sold price should not differ too much, either.
Your comparative market analysis should be as objective as possible, however it is good to consult it with the property’s owner – there might be some special features or amenities that you will have no idea about. Still, whenever the property owner is involved, they will most likely want the price to be as high as possible and they will not be objective about it. After all, a home most often than not has a sentimental value. Your job is to take into account only the features that really matter from the market’s point of view.
In the fast changing times for real estate, it is important to take trends into account: the current local market conditions and whether the circumstances favor the buyers or the sellers, market trends, recent sales data, the dollar value and the mortgage interest rates. This is when your professional expertise steps in – you have to be able to tell whether similar properties sold at a certain price are still worth the same value of money, or maybe there are some changes going on that you’ve been observing that might affect the price?
Why Should a Local Real Estate Agent Make a CMA Report?
From the buyer’s perspective
Presenting a coherent CMA report will help them narrow down their expectations and adjust them to their budget. They will be able to see whether it’s a good time for them to find a new property, or maybe they will spot negative trends that will make them put this decision on hold and invest later. If your client decides on buying the property, they will be sure that the buyer’s closing costs are fair and in line with the most recent sales data.
From the seller’s perspective
Estimating the cost with the help of your own comparative market analysis is crucial if you want to prevent the listing from expiration and, as a result, a decrease in value. Your seller clients will appreciate having reliable information on their property value and realistic expectations when it comes to making a deal or price adjustments. It might also turn out that the property can be easily upgraded and sold at a better price with just a little effort and with the favorable ROI. Apart from that, it will work as a guideline for you on how to promote your listing online and how to communicate your offer to highlight the propertie’s strong features and make it stand out from the competitive offers.
Finally, from the real estate agents’ perspective
It works great for your professional image and makes your life and relationships with the clients much easier. Doing the math is one thing, but being able to present the estimated value and support your recommendation with facts puts you in the position of a real professional. After all, it is much easier to educate your clients using hard data that is indisputable than just assumptions. You will be much more confident about your listing price when you present some comparable sales from the recent past.
From Investigation to Presentation. Making a Comparative Market Analysis – Step by Step
So how do real estate agents get from zero to presenting a beautiful table sheet with an average sales price that will prove that they’ve done the homework, got the right listing price and are well prepared to represent the client? Follow our 4 steps guide!
Step 1: Investigate the neighborhood for comparable properties
The first thing to do is to see recently sold homes in the area you are interested in. It’s good to find up to 20 properties that recently sold (in the last 3-5 months maximum). You can take a look at active listings, too, but make sure that they are not expiring (i.e. they have been listed for quite a long time already).
Step 2: Choose your comparables and note their sales price
The next step is to separate the wheat from the chaff. From all the properties you have listed, try to choose those who are the most similar to the property you will be selling. Three of four will be absolutely enough.
If you can’t find comparable properties in the nearest area, you can find other properties in an area that has similar characteristics and status, however doing it properly requires more experience. If there are any competing agents listing similar properties, don’t hesitate to take a look at how they promote it.
Step 3: Create your sheet
Once you have your comparables, you can create a table sheet where you will compare the properties feature by feature, starting from general information, such as year built, square footage, lot size, price per square foot, property type, storeys, through details such as the number of bedrooms, bathrooms and additional information such as separated dining room, half baths, and finishing on features such as the driveway, garages, basements, balconies, terraces, pools and so on.
If there were any recent upgrades or refurbishments done – it’s crucial to include it in your table. The last thing to do is to compare the addresses and the amenities in the vicinity: you can include the malls and restaurants that are nearby or even local schools district code. In addition, you can also include the property’s tax records and sales history.
Step 4: Calculate the average
Collect the listing price and the sold price of each property. Having it done, calculate the average market value of a property in a given neighborhood, which will work as a yardstick for your estimation of the property you are going to list.
Take a look at our Comparative Market Analysis Example:
Step 5: Estimate your property
Once your CMA is done, it is a good starting point in the estimation process for your property. Having the Comparative Market Analysis sheet in front of you helps suggest the estimated fair market price as well as justify it both to the buyer and to the seller. You can clearly see which features make the property a better deal and where there are some drawbacks. It often turns out that with just a little bit of effort and some unsubstantial investing, you can significantly upgrade the property and add some more desirable features to make it more attractive and similar to a comparable one that sold at a better price.
CMA vs Appraisals
As a real estate agent, you’ve probably come across appraisals. Although CMA and Appraisals are both aimed at property value estimation, they differ significantly and in the end, they might show a completely different number.
While a Comparative Market Analysis can be done by any real estate agent who knows the business and the area, appraisals are done only by a licensed appraiser working at the bank’s request. They are used for different purposes as well – Comparative Market Analysis is a great tool for real estate agents, brokers and their clients, while appraisals are used by banks when they are deciding whether to give out a loan or not: its aim is to determine if the property’s adjusted price is fair and to protect the buyer (or the seller) from making a significantly unfavorable decision and it takes slightly different things into account in its analysis. More often than not, the CMA report and an appraisal suggest a different sales price of the property.
To sum up…
If as a real estate agent you haven’t worked with Comparative Market Analysis before, it will definitely change your game, make you more confident while working with the clients and make a competitive offer. A thorough market analysis will help you establish your professional image, negotiate price for your buyer clients and get the best out of the properties you are trying to sell. After all, numbers never lie and nothing hurts like expired listings!
