Buying or Selling Your Home? Understand the Term “CMA”

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If you’re new to the world of real estate, the term “CMA” might be a little confusing. The article below explains what a CMA is, how it works, and how it differs from an official appraisal. Keep reading to learn how you can get started figuring out how much a property is worth.

What is a comparative market analysis (CMA)?

At its core, a comparative market analysis (CMA) is a report that helps readers to estimate the value of a property based on the sale prices of other, similar properties that have recently been sold in the area. Typically, this type of analysis is used by sellers to determine an appropriate listing price for their home. However, buyers can also use it to determine how much to offer on a property.

For the most part, CMAs are completed by real estate agents, who have the ability to use MLS data to find the best properties to compare. However, as a buyer or seller, you could perform your own informal version of a CMA using real estate search portals like Zillow or Realtor.com. That said, if you decide to do so, bear in mind that the information you receive may not be as up-to-date as the data that your local MLS can provide.

What is included in a CMA report?

In order for a comparative market analysis to be useful, it needs to take a close look at a few properties that are fairly similar to the property being bid on or listed for sale.

Once these properties have been selected, they can help the individual conducting the analysis determine an appropriate price range. After that, adjustments can be made within that price range to accommodate for any differences between past sales being analyzed and the property that’s currently on the market.

Usually, the following criteria are considered when selecting past sales:

  • Location: The homes should be as close to your property as possible, ideally in the same neighbourhood.
  • Square footage: Interior square footage and exterior lot size are both important considerations.
  • Number of bedrooms and bathrooms: An increase in number will usually add value while a decrease is a reason to consider a lower sale price..
  • Age: Newer properties tend to garner a higher value than older homes.
  • Upgrades: Upgrades and renovations typically add value, as do any additional amenities. Meanwhile, properties that have not been renovated in some time may need to consider a lower sale price.
  • Overall condition: Properties that are well-maintained tend to fetch higher values ​​than those that aren’t.
  • Sale date: The sale date should, ideally, be within three to six months of when your property will be listed for sale.

What’s the difference between a CMA vs. an appraisal?

While CMAs and appraisals may sound similar, one is undoubtedly more official than the other.

On the one hand, a CMA simply provides a price estimate that can be used as a starting point for negotiation in a real estate transaction. On the other, appraisals are used by banks to determine how much they are willing to lend. An appraisal must also be conducted by a state-licensed professional who knows how to analyze differences between properties in greater depth and can evaluate market conditions to determine necessary changes in market value.

The bottom line on CMAs in real estate

Whether you’re buying or selling a home, a CMA can be a useful tool in determining how much a property is worth. Real estate professionals perform CMAs all the time, so don’t hesitate to reach out to your agent for assistance when you’re ready to start negotiating.

Tara Mastroeni is a freelance real estate and personal finance writer. Besides Business Insider, she writes for Forbes and LendingTree. She is a frequent Realty BIz News Contributor

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