What is a CMA?
This blog post was written by a real estate agent for us.
CMA stands for Comparative Market Analysis and is a report meant to reflect the market value of a property, usually a residential home. The basic concept is that you have a Subject Property (SP), and then look for comparable properties (comps) that have already sold and therefore have purchase price amounts that can be broken down by feature in order to determine what the SP might sell for as well. A CMA is not quite as in depth as an appraisal but is usually pretty close to appraisal value.
So, how does it work?
Let’s say I want to find the value of a SP in Salt Lake County. The primary elements I want to evaluate is location, features, market at the time of sale, and condition.
Location can’t be changed, so it’s an obvious feature to consider. The exact same home in Magna and Cottonwood heights will have different values because of the location. When an appraiser evaluates a home, they have guidelines on the proximity of the comps to the SP. For a CMA, a realtor will try to find 3-5 comps as close to the SP’s location as possible. I start with half a mile, then move outward until I can find sufficient properties to have a good sample.
Features are things like how many bedrooms and bathrooms, what size the garage is, what size lot, how many square feet and what level of the home those square feet are on. Basement square footage is less valuable than main level square footage. The most important square footage is what’s above ground. Common features, such as what I’ve already listed, are relatively easy to work with. Unique features like pools, theater rooms, gardening sheds, and exotic landscaping are challenging to value because it’s hard to find properties that have the same feature and the feature themselves don’t necessarily add value. For instance, one buyer might think a pool is amazing as they imagine backyard barbeques and parties. Another buyer might see it as a safety hazard that’s expensive to maintain. Agents and appraisers are therefore cautious in evaluating the value of unique features, which is often frustrating to the homeowner. They may have spent $20,000 on a theater room that the appraiser gives $7,000 value to.
Market at the time of sale is one of the most important considerations because the market is always changing. Appraisers are limited to comps that have sold within ninety days unless they absolutely can’t find any. Interest rates, pandemics, how many similar homes were sold, and time of year are examples of the details that can have major effects on the price a home sells for. As soon as another home sells within the range of the CMA, all the data shifts which is why a CMA can be different from one week to the next in certain areas. The more recent a sale, the better a comp it is.
Condition is the fourth element that is considered. An appraiser will do most of their work from home because it’s data-dependent. However, the appraiser will typically go to the home and inspect the condition and take pictures. Updates mostly affect the value of a home for about five years, meaning if you put in the trendy countertop and top of the line appliances, that only “counts” for five years, then it’s generally considered out of date. Condition also applies to the level of repair in the home. Unkempt interiors or exteriors of the homes may require value adjustments depending on the condition of the SP in relation to the comps and some limitations can affect the type of loan that can be made on the property (FHA and VA). It can be a difficult to evaluate condition when all we have to go off of are pictures of the comps, but we do our best to give a fair analysis.
After we have investigated all these aspects, we line things up and start adding and subtracting from the comps so that the features line up with those of the SP. For instance, if our SP has three bedrooms and a comp has five bedrooms, we will minus $10,000 ($5,000/bedroom) from the sold price of the comp so that it’s priced as though it has the same number of bedrooms as the SP. We do the same with all the standard features—square footage, acreage, garage space, bathrooms, how much square footage per level of the house. If the SP has one more bathroom than the comp, we’ll add the price of that bathroom onto the comp property to balance it in that direction. We then have the option to add a certain dollar amount to any of the properties to reflect upgrades or features that weren’t the ones automatically considered—like that pesky pool or the fact that one of the comp properties had an entire kitchen remodel six months before it sold. What we get from this is an adjusted sales price of each comp based on the idea of that home now reflecting the same features as our SP. Those prices are averaged out to create an adjusted value of our SP.
The biggest problem with CMAs is that they can be manipulated. If I pull up six comps and eliminate the three lowest values, I might not get a fair determination of value. If I’m valuing a split-level home but compare it to ramblers, I again won’t get a fair value. Using a realtor you trust becomes an important consideration, as does having an open mind about your home’s value. Sellers are inclined to believe their home is worth more than the data would support because they love it and have emotional ties. Find a good realtor and ask good questions; those two things will set you up for your greatest potential success in determining the market value of your home.
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