Quite honestly, for many agents who are just starting in their real estate careers, running a CMA (Comparative Market Analysis) can be a tough task. Well, to be fair a CMA does require a lot of calculations and work.
But as tough as it may be, it’s very important that an agent knows how to produce a detailed in-depth market property analysis to build a great reputation with his or her clients.
Why is it really needed?
Because, for common people, real estate is like stepping into unfamiliar waters. They’re skeptical about it and seeing detailed information that they can understand eases them up a bit. An agent can use this report as a base to price a property right and it does sound better to the clients as well than just a random price thrown at them.
What’s A CMA and Why Do You Need to Run It?
A CMA is a detailed report prepared by a real estate licence holder that is used to come up with an estimated price for any property. The calculations are based on the information you collect from recently sold, active, and expired listings of similar properties, in similar areas. The next step would be to compare the calculated average market price to the price of the property in question to determine the price of the property to list.
A real estate agent would be required to perform a CMA in only two cases.
1. For A Potential Client or Selling Client
Either you have a potential client who’s looking to sell a property or you’re getting ready for a listing appointment. In both cases, you’d be required to run a CMA that carries all the information that benefits you to provide a clear estimated price of the property.
2. For An Interested Buyer
The second case that requires you to conduct a CMA is when you have an interested buyer. You want to use your calculations to approximate a fair price so that you can notify your client whether they’re getting a good enough deal or not.
Still feeling a little lost?
Don’t worry, since this basic guide can help you master the art of conducting a CMA in no time. And believe me when I tell you, knowing how to run a detailed CMA can be an important building point for any agent towards a great career.
So without any further delay, let’s get into it. A fair warning, I have tried to provide an overall view of everything in detail for you and hopefully, you guys can learn pretty much on preparing a CMA with ease.
Step 1 – Assessing The Neighborhood
The first step to running a CMA is to assess the neighborhood before even visiting the property. Although, it’s very hard to calculate an estimation if you haven’t taken a look at the property yourself, but by assessing the neighborhood you can assess the following key factors.
- Positive attributes of the neighborhood
- Positive attributes of the property
- Any negative impacts like proximity to garbage dumps, highways, or industrial areas
- Curb appeal issues
Once you’ve addressed all the factors regarding the neighborhood, you’ll be able to identify which factors can contribute towards the estimation of a price for the property you’re running the CMA for and which factors will be of no help at all.
Tip: You can either inspect the neighborhood in person or use Google Street View to do your assessment.
Step 2 – Assess Similar Listings
Now that you’ve assessed the neighborhood and extracted valuable information for your CMA. It’s time to get on the internet to put your search hat on and log in to famous property websites in your area (varies from area to area).
These websites will have many listings similar to the property you’re dealing with. Some of them might be recently sold, some might be active, or some might have gone stale. Keep in mind to extract as much information as possible and use it as a base for your CMA.
Let’s say, you’re supposedly dealing with a property located at 6421 Moon Avenue – Betterville – Perth – Australia. This particular property has 5 bedrooms, 3 bathrooms and is professionally landscaped. Now your job is to find properties that are similar to yours.
Find various listings in the area and note down the prices for properties that are similar to the one you’re dealing with. Keep in mind, people can ask for a higher price than what the property is actually worth. You only have to collect this information for your CMA and use it only to get a rough idea.
Tip: The actual price of the listed properties is usually lesser.
Step 3 – Start Your Initial CMA through A Software
The next step on your way to conducting an in-depth CMA would be to prepare a preliminary report first. It’s time to turn the ignition key on your MLS or similar software that can help you get a rough idea of what the price of the property should be. Softwares like Cloud CMA or Touch CMA can help you put together presentable reports that can be viewed on your tablets, laptops and can be saved in multiple formats.
Let me take you through the various guidelines that will tell you what exactly you need to look for.
Homes that have been recently sold, pending sale, or have gone stale:
There’s a lot of information that you can extract from these searches. The recently sold properties will give you a rough idea of what the price estimate should be.
Stale listings will give you an idea of a price that will prove to be too high while currently listed properties will let you assess the current market situation more clearly.
Homes with similar features:
I’ll be very frank with you, a house’s price is generally assessed by the number of bedrooms and bathrooms it has. All other additional benefits come secondary, so for your CMA, you should have a look at properties listed in your MLS that have the same number of bedrooms and bathrooms as the house you’re dealing with.
Similarly, if you have additional features like a pool or any other amenity. You can look for properties with similar features such as that as well.
Homes in the same neighborhood
Assessing the neighborhood is a very important step while you’re preparing a CMA. Because, usually properties in the same neighborhood are very similar to each other. It’s not set in stone, but generally, that is the case. So if there are any other properties up for sale in the neighborhood, you can use the information to assess a rough estimated price.
I would prefer that you do your analysis based on the above-mentioned criteria but you can add or subtract a few according to your requirement.
Tip: Consider factors that can affect the price of the property.
Step 4 – Assess the Price per Square Foot and Get a Rough Estimate
After all the hard work that you’ve done going through the first three steps, you should have a list of comparable homes in your hand. Congratulations, you’ve done the heavy lifting, now it should be easy.
All you have to do is divide the selling price of each home with the square footage of that particular property. Find an average per square price and multiply that number with the square footage of the property you’re performing the CMA for and voila you have landed yourself at a reasonably accurate price.
(Avg per square price) ✖ (Square footage of property)
Let me run the whole scenario for you. The square foot area of the property you’re dealing with is 2000 square foot and you have a list of properties similar to that one.
Based on this data, we land ourselves at a square foot average price of $190. Now by multiplying $190 x 2000 = $380,000. And ding, ding, ding, that’s a fairly accurate value you’ve got on your hands for the home or property you’re dealing with.
Step 5 – Assessing The Home
Now that you’ve already done your research, done all the calculations, and estimated a price that you think is quite alright. It shouldn’t be hard to move onto the next few steps. All that is needed now is that you visit the property in person.
While you’re visiting, you need to check if there are any hidden drawbacks that might impact the market value of the house. You might want to be on the lookout for the condition of the house, are there any upgrades or additional benefits and what the exact condition of the property is. All of these contribute greatly to the price of the property.
If you see any factor that you did not consider as part of your initial research, you might need to make a few adjustments to your analysis.
Let me put a checklist here for you, so you can easily tick them off.
- Negative points
- Curb Appeal
- Additional renovation
Tip: A personal visit will reveal some of the details you might have overlooked.
Step 6 – Preparing The Final CMA Report
The last and final step on your way to conducting a CMA is to make the final report. Let me recap a little bit of what you’ve already gone through. You’ve done your research, assessed comparable prices, gotten a fair price per square foot, and made your assessments by visiting the property in person. Now, all that’s left to do is getting done with the final step of making a presentable report for your clients.
Again, it’s your choice, either you could make a powerpoint presentation or use the help of a software that puts together your reports for you in a nice presentable form, it’s totally up to you.
Tip: Present the information in a way that makes sense to your clients.
If you’re able to understand the basic concept of running a property market analysis, you’ll be able to master it eventually. I might have just provided a bird’s eye view of all the fundamental steps that are involved and hopefully, it shall help you out.
If you’re still unable to comprehend all of this information, feel free to leave your remarks in the comments section below.