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Comparative Market Analysis (CMA) In The Real Estate Industry

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comparative market analysis

Comparative Market Analysis (CMA) In The Real Estate Industry

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comparative market analysis
Home » Real Estate Concepts » Comparative Market Analysis (CMA) In The Real Estate Industry

Comparative Market Analysis (CMA)

The real estate market is always booming, or so we think. With real estate investments and opportunities for expansion shooting through the roof, we thought it is only rational to discuss the comparative market analysis spectrum so you know what to expect when you indulge in property deals.

What is comparative market analysis (CMA)?

Comparative market analysis, which is also called CMA, is the concept of comparing prices.

In a certain area, you will find veritable highs and lows in active listings. These selling prices are influenced by several factors but the concept of how these home prices differ is CMA.

In short, comparative market analysis is the prices of the comparable sales of each property in a certain area based on the square footage, lot size, floorplans, and interior valuation.

If you’ve put a property on the market then your realtor or real estate agent would have defined an asking price and a price at which you actually sell the property. This is a phenomenon used by different realtors to acquire listings based on comparative pricing techniques.

Read also – What Is The After Repair Value (ARV)?

comparative market analysis for home property

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1. Square footage of the interiors and the lot size

Every subject property has an allocated lot size which includes the house itself and the landscape, gate, and fencing. The interior of the house is measured in square footage. The valuation will vary based on the charge per square foot.

A single-family home cannot be compared with one that has three bedrooms and massive infrastructure and open floor plans.

Read also – Sell Your Architectural Services Better

2. Age of construction and the condition of the property

A newly constructed property will be up to the recent building code and comply with current zoning laws. However, even if a relatively new property is not up to code or in a run-down condition then the property value will be a lot less as compared to recent sales of similar homes.

The current market value of an old property will be appraised based on the value of the neighborhood, its advancements, and similar properties that were sold in the past three months.

3. Amenities and upgrades that it encompasses

If the homeowner and property consultants or real estate investors endowed upgrades to improve the aesthetic appeal and the standard of living, then property values will rise.

Upgrades such as fireplaces, built-in appliances, etc. can add zest to the home which h appeals to homebuyers. Similarly, renovations to improve the condition of an old home such as an interior makeover, landscaping, and adding a swimming pool, could escalate the price of a property.

Read also – The Gross Rent Multiplier (GRM) in Commercial Real Estate

4. The location of the property

The comparative market analysis will also check the accessibility of the house with that of similar properties. So, if the location is close to a school district, supermarkets, hospitals, and other necessities, then the valuation of the property will be higher. However, if the property is located on a remote road that is inaccessible with ease, then the comparative market analysis will show a lower value for that property.

What does the comparative market analysis report consist of?

Based on the factors mentioned above, your real estate agent will determine a CMA report for your property. They will enlist comparable homes, competitive offers, and conclude the home’s reasonable value based on sales of similar properties in the area.

comparative market analysis report

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Here’s what the reports usually contain:

a) Active listings of nearby properties

These are the properties that are up for sale in the current market. The sales prices don’t really impact the CMA because each homeowner will have their own asking price based on the suggestions from their listing agents. It does matter to homebuyers though because they can get competitive offers on their purchase.

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b) Pending listings of similar properties

After a certain point of time, when active listings have not been sold, they become pending listings. At this point, homeowners need to have a discussion with their realtors and determine if they need to slash the prices without incurring a loss on their property value.

c) Sold price listings

Any property that was sold within the past three months serves as comparable sales. These are the properties that homebuyers and listing agents will compare to your current property. Based on these sales and the pending listings, a licensed appraiser can determine a fair market value and listing price for your property.

d) Canceled and Off-market listings

The property listings which do not account for any substantial sales, end up being canceled. The cancellation may be because of various reasons that we shall discuss in a minute. The most common reason, however, is the increasingly high price as paralleled to comparable properties in the region. These listings are removed because they do not appeal to buyers and yield no results.

You can get an idea of what each of these listings means by simply going through property lists on realtor.com and similar housing market websites.

Read also – What is a Commercial Lease Agreement?

What makes a canceled listing?

Depending on the circumstances of the seller and the changing market conditions, here are a few reasons that listings may be canceled over time:

1. Repair requests from homebuyers or realtors

Oftentimes, when a homeowner wants to list a property, real estate agents will suggest a few basic repairs and renovations so homebuyers fall in love with it in an instant. However, there are times when a buyer absolutely loves the property but wants the owners to make a few more adjustments, maybe consider some hard repairs, etc.

Homeowners may not be looking forward to spending more money on repairing a property that they want to sell because they have other interested buyers. The buyers can back out at any moment due to their trepidations and by the end of the day, the owners and listing agents are left with the property as it is.

If the homeowners and homebuyers cannot come to a settlement and the property stays on the market too long then the price begins to decline. This is when real estate professionals suggest canceling the listing permanently or at least in a temporary capacity till the owners can make the necessary adjustments.

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2. Extension on the ‘Days on Market’

If a property does not appeal to homebuyers and stays on the market for too long, it starts to lose its appeal. New buyers may be put off when they see that the property has been listed for an extended period of time with no takers. It creates a negative impact.

Hence, real estate professionals insist upon canceling the listing and withdrawing the property for a few days. Then they re-list it and the subject property appears as a new listing on the websites and the housing market. This attracts new buyers because the property listing is presumably fresh on the market and has a lot to offer.

Homeowners and realtors can take the downtime to revamp the property ad to entice their target demographic.

Read also – 8 Best Decor Ideas To Furnishing A Small Apartment

canceled listing in comparative market analysis

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3. Expired listings

Often, property listings may be canceled because the realtor or real estate agent did not promote it adequately so the listing was overlooked. It may also happen that the homeowner priced the property at a much higher value than other properties with similar features, square feet, and the number of bedrooms. It is possible that the property was in dire need of repair and the owners did not take sufficient action.

In any of these cases, the listing stays on the market way too long with no interactive communication between interested parties. Thus, the property listing is canceled or removed or it simply expires.

The owner can revamp the listing and place it back on the market with a different, competitive realtor or make the necessary changes to the property in order to make it more appealing to buyers.

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4. Higher listing price as compared to the valuation

Often, homeowners are so focused on the profit they can make from selling a property that they assess it much higher than their actual valuation. They’re not entirely wrong. They may have spent a ton of money in repairs, renovations, and upgrades but making a pricing decision while ignoring the comparative market analysis report results in expired property listings.

Buyers will compare the features of the current comps and determine if the sales price is worth the home’s value. If it falls short, then the property remains unenticing to a point where the realtor or listing agent will suggest removing or canceling the listing.

The homeowners and real estate professionals need to come to a rational compromise and reinstate the listing at a lower price or competitive pricing as compared to similar properties.

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5. Seller’s remorse

Last but not least, the seller of the property may encounter a personal predicament or realize the emotional attachment they have to the property and decide not to sell.

It is possible that the seller was only looking to sell the property because they had to pay back lenders or mortgaged the house. It could be that they planned on moving away but changed their minds. It could also be simply because they were previously unencumbered by the emotional hold of stones and brick but suddenly remembered the good times they had and the memories they built in the house.

This causes them to back out of the deal and the listing is ultimately canceled due to seller’s remorse.

Read also – The Average Salary of An Architects

Conclusion

Creating a comparative market analysis can be very time-consuming and cumbersome. If you have a dedicated realtor, they will provide realistic CMA reports based on thorough research.

You see, comparing two properties is a Herculean task because each has its own selling point. You can’t compare a set that is not completely equal in all its measurable appeal. A new home cannot be compared to a ten-year-old property even if it has similar square footage. Similarly, a furnished home with state-of-the-art upgrades must be compared with the current market value of similar properties, not an empty house. That’s what determines a fair market value.

Therefore the listing agent will need to determine the property value based on other homes of the same condition, age, curb appeal, size, and upgrades. You can take a look at current market values of properties with differences and similarities in any location on Zillow to get an accurate idea. These property listings may appear similar but if you take a closer look, you will find nuanced differences in the interiors, condition, features, and a lot more.

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