For many new agents preparing a CMA (Comparative Market Analysis) for the first time can be downright intimidating. After all, experienced agents make them sound like something only grizzled real estate veterans can produce. Luckily, this isn’t the case anymore.
With the right tools and software and a bit of hard work, any agent can put together a great CMA.
This guide will help demystify the CMA and get you started producing reports that will impress even the most skeptical FSBO home owner. We’ll cover the following:
- What is a Comparative Market Analysis(CMA)?
- Why Mastering the CMA is so Important for New Agents
- 7 Steps to Creating a Comparative Market Analysis
What is a Comparative Market Analysis (CMA)?
A comparative market analysis (CMA) is a document prepared by real estate professionals to help determine the selling price of a home by comparing it to recently sold homes in the same area. To create a CMA, real estate professionals look at the price of recently sold, active, and expired listings that are similar (comparable) to the home they’re trying to sell.
There are two general situations where running a CMA is essential:
- For a listing appointment – Any time you want to tell a homeowner how much their property is worth in the current market. This includes when you’re pitching referral homeowners, FSBO’s, and Expired leads.
- To help a buyer find a good deal- The other time you should be running a CMA is to help a buyer determine if a home they’re very interested in is a good deal or not. You will eventually be able to know right away when a home is overpriced, but if you’re just starting out or working in an unfamiliar area, a thorough CMA will tell you if a home is priced right.
Why Mastering the CMA is So Important for New Agents
There’s an old saying in the real estate industry, “Those who list, last.” Though it may be a bit of a cliche, it’s a cliche for a very good reason. Agents who get sales listings tend to do well and stay in the industry longer than those who are stuck working with buyers. There’s no way around it.
There’s solid logic behind this simple truth about the industry. Along with marketing and closing expertise, determining the value of a client’s home is one of the most important skills a new agent can learn. In the age of Zillow, this is one of the only skills that separate the professionals from the amateurs. It is extremely difficult to get an accurate CMA without access to an MLS, so think of a CMA as your value add, special sauce, and secret weapon rolled into one. Here’s how to get started.
7 Steps to Creating a Comparative Market Analysis
Before we get started, you should understand that you will essentially be running two comparative market analyses: One to get a sense of the value of the home BEFORE you go on your listing appointment, and one to present to the home owner AFTER you’ve seen the home to see how accurate you were.
Okay, I know what you’re thinking. You just told your prospective client that you can’t tell him how much his home is worth until you’ve seen it in person. It was one of the best lines in your Mike Ferry script. So why not wait until you get there? Simple. That homeowner you booked an appointment with might have three other agents coming that afternoon. She’s going to have questions ready for you. You need to have the answers.
Step 1 – Assess the Neighborhood
After landing an appointment from a FSBO or referral, the first step in preparing your comparative market analysis is to asses the neighborhood. While you won’t really be able to properly asses the home until you’ve seen it in person, taking a quick look at the neighborhood online will help prepare you for the appointment.
Street View to the Rescue
Google Street View will tell you almost everything you need to know about the neighborhood surrounding the home you’re going to prepare a CMA for. Here are some things to look for to get the lay of the land:
- Nice blocks vs less attractive blocks
- Proximity to amenities like beaches, parks, schools, etc
- Proximity to unpleasant locations like garbage dumps, highways, industrial facilities, etc.
- Significant curb appeal issues
Step 2 – Assess the Listing (if any)
Once you’ve checked out the neighborhood, see if you can find the original listing. If it’s still up, the listing should give you a ballpark idea of what you’re up against. Look very carefully at the pictures and description. This should give you a pretty decent sense of the condition of the home, any upgrades that have been made, as well as issues in marketing strategy.
Step 3 – Check Zillow Zestimates
Since Zillow’s Zestimates are only based on limited tax records and data added by agents, they should always be considered a starting point for valuation rather than an accurate estimate. Zestimates can be off by as much as 20-30%. For example, Zillow’s own CEO Spencer Rascoff recently sold his own personal home for 40% less than its Zestimate.
Why Look at Zestimates if they’re Inaccurate?
If Zestimates are not reliable, why even look at them when running a CMA? Simple. Homeowners don’t know just how inaccurate Zestimates can be. Since Zillow dominates the real estate listings space, your clients will have already checked out the Zestimate for their home and may think this provides a good idea of its value. You need to be able to address the Zestimate when your homeowner brings it up.
Check the Accuracy Rating for Your Area
Since Zillow is very upfront about the limitations of their Zestimates, they actually publish an accuracy rating of their Zestimates for states and counties. In order to tell how accurate the Zestimate is, you need to check the accuracy rating on Zillow. Here’s how you find out.
Go to Zillow.com and scroll down to the bottom of the page and click on “Zestimates.” From there, click on “How Accurate is a Zestimate”. This will bring you to a table called “Data Coverage and Zestimate Accuracy Table”. If you click on “States/Counties”, you can drill down and find the state and county your potential listing is in. Here’s that that table looks like for New York State:
The first column “Zestimate Accuracy” is an accuracy rating based on a star system. 1 star is very inaccurate, while 4 stars would be very accurate. The other columns show the number of home in that county on Zillow, the number of homes with Zestimates, those that sell within a certain percentage difference from the Zestimate, and the margin of error.
Let’s look at Erie County, New York, as an example. Out of the 298.1k homes with Zestimates in Erie County on Zillow, only 37.4% had a Zestimate within five percent of the selling price. 59.6% were within ten percent, and a whopping 77.5% came in within 20%. The margin of error is 7.5%. This means that the majority of homes in Erie County sell for 20% less than their Zestimate. The net/net for your homeowner is that the Zestimate is likely to be off by 20% or more.
Even though Zestimates can be wildly inaccurate, your potential client might not know that. This is why getting ahead of the question and backing up your answer with data is so crucial.
Step 4 – Start Your Preliminary CMA on Your MLS or Through Cloud CMA or Similar Software
Once you’ve assessed the neighborhood on Google Street view, checked out the listing, and looked up the Zestimate on Zillow, the next step is to fire up your MLS or CMA Software like Cloud CMA or TouchCMA. These platforms take MLS data and create attractive CMAs that can be presented on tablets, viewed online, or saved as PDFs and printed out to leave behind with your home owner. .
The idea is look for comparable listings and come up with a rough idea of the home’s value. You need to look at sold listings, expired listings, active listings, and pending listings that are comparable to the home.
Unfortunately, since different MLS systems run on different backend software, we can’t run you through the exact steps you need to take in your MLS. Instead, we’ll walk you through some general guidelines about how to sort listings in your MLS by to find comparable homes. You’re looking for:
- Homes that have sold, expired, have sales pending, or been listed in the past six months. Sold listings will tell you exactly what similar homes in the area have sold for recently and are your primary way to assess value for your comparative market analysis. Expired listings will tell you pricing the market is not willing to bare. Pending listings can give you a good idea of what similar homes are selling for right now. Current listings will tell you what your competition is like.
- Homes with the same number of bedrooms and baths as yours. Generally speaking, the number of bedrooms and baths is one of the most important criteria for valuing a home.
- Homes within roughly 300 square feet of yours. (i.e. if your home is 2,000 square feet, look at homes that are between 1700 and 2300 square feet) While it’s generally true that more bedrooms equal a higher price, square footage is almost as important. After all, bedrooms can be added or removed from a home fairly easily. Also, if a room meets the legal definition of a bedroom in the eyes of your local building code, dining rooms, dens, and offices can all be labeled as “bedrooms.”
- Homes that are in the same neighborhood. Figuring out exactly what “neighborhood” the home is actually in can be very tricky. This is why assessing the neighborhood online is so important. See if you can find what locals consider the boundaries of the neighborhood. If their’s no general consensus, geographic features like train tracks, highways, and shopping centers can also signify borders between neighborhoods.
- Homes that are in the same or comparable school zones. This is another important factor, especially in big cities. Homes on one side of a street might be in an excellent school zone, while schools on the other side might be in a terrible school zone. The difference can add or remove surprisingly significant value from a home. While your MLS may have information on school districts, always double check as the boundaries can change. k12.niche.com is a good site to check school zone locations.
- Homes with a similar lot size as yours. A home on ten acres of land is going to be worth more than a home on one acre. Generally speaking, lots in most neighborhoods are roughly similar sizes.
- Homes built within 10-25 years as yours. This is another tricky one. While brand new homes are generally valued higher than older homes, some older homes, especially antique homes or mid-century modern homes, might command a premium over new construction. Depending on the changes that have taken place in the neighborhood, new construction might be high end, low end, or comparable to the existing inventory. if you don’t know much about the neighborhood, ask a coworker who does.
- Homes that have similar amenities as yours. For example, if the home has an inground pool, try to find other listings with inground pools. If the home is oceanfront, comparing it to other oceanfront homes will yield much better results than comparing it to homes a few blocks away from the water.
Step 5 – Pull Together the Comparable Listings and Get a Price per Square Foot
Now that you’ve narrowed down the criteria of your search, you should have several homes that are roughly comparable to the one you’re running your CMA on. The next step is to take the selling price of the comparable homes you’ve chosen and divide it by their square footage. This will give you the price per square foot for each comparable home.
After that, find the average between the prices per square foot of the comparable homes. Now multiply the average price per square foot by the exact square footage of the home you’re running a CMA on. Congratulations! You’ve come up with a fairly accurate estimate for the price of your potential client’s home.
Let’s say the home you’re running the CMA on is a 3000 square foot ranch. You find 4 comparable homes when you run your CMA.
- Home one is 2700 square feet and sold for $500,000 (price per square foot: $185)
- Home two is 3200 square feet and sold for $525,000 (price per square foot: $164)
- Home three is 3300 square feet and sold for $510,000 (price per square foot: $154)
- Home four is 2650 square feet and sold for $495,000 (price per square foot: $187)
- Home five is 3100 square feet and sold for $515,000 (price per square foot: $166)
After crunching the numbers, we find that the average price per square foot for these homes is $171.20. Multiplying our home’s square footage (3000 sf) by the average price per square foot gets us an approximate value for our home. So, $171.20 x 3000= $513,600. Congratulations, you now have a rough estimate of your home’s market value!
Step 6- Assess the Home in Person
Now that you’ve done your research, you should be very confident when meeting the homeowner and finally seeing the home in person. After all, you already have a pretty good idea of what the home is worth, so you should be able to address any questions about value the homeowner has for you.
Now you need to tour the home to see if there are any hidden issues which will affect the sales price. You should be on the lookout for things like;
- Condition – Is the home in very poor condition or very good condition?
- Additions and upgrades – Has the homeowner added a swimming pool? Central AC? Skylights? All can affect value.
- The Property – Has the landscaping been recently upgraded? This can increase value as well.
If there are any major issues that weren’t apparent from your initial research, either run a search for new comparable listings that better fit the home in its current state, or adjust the price per square foot of the home to reflect the differences.
Step 7 – Prepare Your Final CMA for Your Potential Client
Now that you’ve done extensive research in the neighborhood, looked up comparable listings, and assessed the home in person, you are ready to put together the final comparative market analysis to present to your potential client.
You can either put together a powerpoint or keynote presentation, save as a PDF, print out and present in a binder, or use CMA software to present to your potential client in a web or tablet presentation.
At the end of the day CMA software offers several advantages over DIy options. They organize the data in a much more attractive way, as well as provide useful information for your potential clients. To get a better idea of what I’m talking about, here’s an example of a CMA produced using Cloud CMA.
The Bottom Line
Once you understand how they work, running comparative market analyses can be fairly straightforward. While accurately pricing a home can involve more market knowledge than we discussed in this article, you should now be able to run a pretty accurate CMA to land your first seller client.
Need more information or have advice for newer agents running their first CMA? Let us know in the comments.