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How to read a Comparative Market Analysis (CMA)?
The CMA is a starting point for a pricing decision and can be revised during the analysis process. It helps you in your pricing strategy to establish your starting price to buy or sell a property. You must be aware a CMA is not the official appraisal of a property. Doing a market analysis helps estimate the range of an amount a buyer might pay to purchase a property. Once you receive a copy of a CMA, here’s how to analyze the data:
We start by looking at the MLS history data through the eyes of an appraiser. This is the same data buyers, agents, appraisers all have access to. All parties interpret the data differently, always doing so to suit their needs.
Initially we start with these five variables:
- Go back looking at six months of history
- Same subdivision
- Out ½ mile from the subject property
- Within 25% of size
- Within 33% of age
To come up with an estimate of market value, typically we multiply your square footage by the price per foot of the most comparable sold home and make adjustments for differences in floor plan, condition, location and amenities. As a starting point, we compare and look at the listing(s) that compare best to the target property in those terms.
In the end, only a buyer can tell what a property is worth. What they pay is what it is worth. When selling, whatever price you start at you can make reductions as you go. I always tell people it is easier to go down than up in price. If you have the time to follow this approach you will be pretty comfortable by the time you are in negotiations.
From a statistical standpoint, the analysis may be not enough data to make a pricing decision. Appraisers must adjust the criteria if there are not enough results to make reasonable decision. As an appraiser adjusts, so can we adjust parameters to look at more properties or narrow the results. For example, we often remove the subdivision limit to get more results. From there we might adjust by going further out. Rarely do we adjust going further back in time. To an appraiser, one rule is absolute; they never skip over a good comp to find a better one and neither should we in our analysis.