Everyone’s heard about at least one real estate sale that fell through. Maybe your grandaunt tried to sell her home — everything looked great, but the buyer’s mortgage servicer pulled out at the last minute. Or maybe you were trying to sell a home, but all the offers kept coming under your asking price. What gives?

Real estate moves fast. You know your house isn’t worth what it was a year ago — probably, it’s worth much more. But how is that number determined? Who sets the price of houses?

Enter the world of Comparative Market Analysis (CMA). Since homes are an investment, the only real way to determine how much a house is worth is to see what houses sell for. But because every house is unique, you must compare nearby, similar properties to figure it out. 

When a real estate agent makes an offer for a buyer — they’re using a CMA. And when an appraisal determines how much your home is worth, they’re using a CMA. If you’re considering selling your house, you will need to understand how CMAs work. 

Jonathan Owens of the Owens Realty Team is here to help. With a passion for helping others achieve their real estate goals, Jonathan became a licensed Realtor® in 2009. Throughout his career, he has served over 315 buyers and sellers — and today, he will help you.

It’s time to sell your house.

Understanding the Comparative Market Analysis (CMA)

A Comparative Market Analysis (CMA) is a report prepared by a real estate agent to estimate a property's value based on the prices of similar properties recently sold in the same area. Unlike a formal appraisal, which is conducted by a licensed appraiser, a CMA is typically less formal and is used primarily to help sellers set listing prices and buyers make competitive offers.

Components of a CMA

A CMA includes several key components:

1. Comparable Properties: These are similar homes in size, condition, location, and amenities that have recently been sold. The selection of comparables is critical as it directly influences the accuracy of the valuation.

2. Active Listings: These are properties currently on the market. While they don’t provide final sales prices, they offer insight into the current market competition and pricing trends.

3. Pending Listings: These properties have accepted offers but have not yet closed. They can give a sense of what buyers are willing to pay in the current market conditions.

4. Expired Listings: These properties were listed for sale but did not sell. They provide insights into overpricing and the market’s upper limits.

5. Withdrawn Listings: These are properties that were taken off the market. Understanding why a property was withdrawn can provide context on market conditions or seller expectations.

How a CMA is Prepared

Real estate agents use several steps to prepare a CMA. They gather data on recent sales, active listings, and expired listings in the area. They then adjust the prices of these comparables based on differences between them and the subject property. Adjustments might be made for factors like square footage, lot size, number of bedrooms and bathrooms, age, condition, and additional features such as a pool or garage.

If you’re savvy, you’ve noticed something: You may be able to impact your CMA! Adding bedrooms, for instance, adds value — directly.

Importance of a CMA in real estate transactions

“Comps are always surprising!” exclaims Owens. “Seriously though, comps are important twice in a normal residential real estate transaction. Once for determining value and pricing for listing the home — and a second time (if the buyer does a loan) for the appraiser to value the home for the loan. The Realtor needs to know the market, the community, and the area, to make sure they select the right comps to work with the seller to pick the right price.” 

For sellers, a CMA helps determine a competitive listing price. Pricing a home too high can result in a prolonged time on the market, while pricing too low can lead to a quicker sale but potentially leave money on the table. According to NAR, 32% of sellers have to reduce their listing price at least once. A well-prepared CMA ensures that the home is priced to attract buyers while still maximizing the seller's return.

For buyers, a CMA provides a basis for making competitive offers. Understanding the market value of a property helps buyers avoid overpaying and ensures their offer is in line with recent sales. It also provides leverage in negotiations, particularly if the CMA reveals that the asking price is above market value.

Finally, for real estate agents, a CMA is a vital tool in providing professional advice and services to their clients. It showcases their market knowledge and analytical skills, which can help build trust and credibility with clients.

How to interpret a CMA

OK, your real estate agent just handed you a huge stack of papers. What does it all mean? Interpreting a CMA requires a careful analysis of the data presented. Here’s how to make sense of the various components:

Evaluating comparable properties

Start by examining the comparable properties included in the CMA. Look at the sale prices, days on the market, and any price adjustments. Consider how closely these properties match the subject property in size, condition, and features. Pay attention to any adjustments the agent makes to account for differences between the comparables and the subject property.

Analyzing active and pending listings

Active and pending listings provide insights into current market conditions. Active listings show what the competition looks like and can indicate current market trends. Pending listings give a sense of what buyers are currently willing to pay. Compare the prices of active and pending listings with recent sales to see if there’s an upward or downward trend in prices.

Understanding expired and withdrawn listings

Expired and withdrawn listings can indicate pricing thresholds that the market will not support. If a property like yours failed to sell at a certain price, it may suggest that the price was too high for the market. Understanding the reasons behind expired or withdrawn listings can help avoid the same pitfalls.

Above all, ask your agent! Their job is to help you understand what’s going on.

Factors influencing a CMA

But – can you do anything about it? Several factors can influence the results of a CMA. Understanding these factors can help you better interpret the report.

• Market Conditions: The overall state of the real estate market plays a significant role in a CMA. In a seller’s market, where demand exceeds supply, prices tend to be higher. Conversely, in a buyer’s market, where supply exceeds demand, prices are generally lower.

• Location: Location is one of the most critical factors in real estate valuation. Properties in desirable neighborhoods or those with proximity to amenities like schools, parks, and shopping centers tend to have higher values. Even within the same neighborhood, properties on quieter streets or with better views can command higher prices.

• Property Condition: The condition of the property, including any recent upgrades or renovations, affects its value. Homes in good condition with modern updates will typically be valued higher than those in need of repairs or with outdated features.

• Size and Layout: The size of the property, including the total square footage and the number of bedrooms and bathrooms, is a fundamental component of its value. Additionally, the layout and functionality of the space can influence buyer perception and valuation.

Using a CMA to set a listing price

Setting the right listing price is crucial for sellers to attract buyers and achieve a successful sale. But the market just moves so fast. A CMA provides a data-driven foundation for setting this price.

Competitive pricing strategy

Using the information from the CMA, you can set a competitive price that reflects the current market conditions and the value of your property. Pricing slightly below market value can generate more interest and potentially lead to multiple offers, increasing the price. Conversely, pricing too high can deter buyers and result in the property sitting on the market for an extended period.

Adjusting for unique features

While a CMA provides a general value based on comparables, you should also consider any unique features or improvements that add value. For example, a home with a newly installed solar panel system or a beautifully landscaped backyard might justify a higher price than the comparables suggest.

Limitations of a CMA

While CMAs are powerful tools, they do have limitations. If your CMA is coming back “wrong,” then there may be some things that you need to discuss with your real estate agent — they’re the ones that will know the best course of action.

• Subjectivity in Comparable Selection: The accuracy of a CMA depends heavily on the selection of comparable properties. Different agents might choose different comparables, leading to variations in the estimated value. Working with an experienced agent who understands the local market and can select the most relevant comparables is essential.

• Market Fluctuations: Real estate markets can change rapidly due to various factors such as economic conditions, interest rates, and seasonal trends. A CMA reflects the market conditions when it was prepared and might not fully account for recent market fluctuations.

• Not a Formal Appraisal: A CMA is not a formal appraisal and doesn’t carry the same weight in legal or financial contexts. While it provides a valuable estimate, only a licensed appraiser can conduct an official appraisal required by lenders and other institutions. So, you might get a favorable CMA when you pull it with your agent, but the appraisal could still come back negative.

Owens cautions, “The appraiser is the wild card. As a general brokerage agent, for years I represented a builder. In one community, I had two buyers each select the same [house] plan. … They were the two most expensive homes in the neighborhood and not by a small amount. The price from the builder was the price from the builder-we did not negotiate. Both buyers need a loan. One appraised — and one did not.”

How to get a CMA

You can request one from a local real estate agent! Most agents provide this service for free as part of their efforts to win your business. Ensure you choose an agent with experience and a solid understanding of your local market.

Redy makes it easy to find the right real estate agent. List your property on Redy, and agents will respond directly to your profile. Redy agents aren’t just highly competitive and interested in winning your business — they may offer a cash reward for representing your listing.

If you sell without an agent, you’ll need to find one on your own.

Should you get multiple CMAs?

Now, you’ve heard that CMAs can be wrong. Certainly, in some cases, it could be beneficial to obtain multiple CMAs. Reviewing multiple CMAs allows you to compare different analyses and methodologies. This can highlight any discrepancies and provide a more comprehensive view of your property’s value.

But it’s usually not worth it. Because the appraisal is going to consider comparables, but it’s not going to be wholly based on those comparables. You need to consider the CMA as just one indicator of your house’s value — albeit an important one.

Common Mistakes to Avoid with CMAs

Life Is rarely easy. Selling a house isn’t. While CMAs are important, there are mistakes that you should avoid. Here are some of the most common mistakes with CMAs. 

• Over-Reliance on Active Listings: Active listings are important for understanding current competition but don’t provide actual sale prices. Relying too heavily on active listings can lead to unrealistic pricing expectations.

• Ignoring Market Trends: Ignoring broader market trends can lead to mispricing. It’s essential to consider the overall market direction, whether it’s trending upward, downward, or remaining stable.

• Failing to Update the CMA: Real estate markets change, and a CMA can quickly become outdated. If you knew what your house was worth six months ago, that doesn’t necessarily mean you know what it’s worth now. 

“It's important that your agent and the appraiser both know the community,” notes Owens. “If you live in a planned development with three builders, are they all the same? My last neighborhood was huge and had four to five different builders, from lower-offering national builders to local, custom builders. The homes were all in roughly the same square footage range, but the values had a pretty wide spread based on what was in the square footage.”

And if your house doesn’t sell, you could need to adjust the price. But the only person who can really give you professional advice would be your agent.

Let’s get started

Don’t be afraid of your comps! Ultimately, Owen notes, “A seller can't change what their neighbor sold their home for. However, a seller can make their home look as good as possible and highlight additions, upgrades, and things that will add value. Curb appeal doesn't make my home instantly worth more than one down the street, but neat, clean, well-maintained homes get better comps. Using the right comps up front and pricing the home correctly makes the entire process easier.”

A CMA is one way to get a rough assessment of the value of your house before an appraisal. However, it is more important to have an experienced agent who understands the market and can guide you through the process. Your CMA is not the be-all, end-all of what you are going to make in this transaction.

Create a listing with Redy to start valuing your home today.

Jenna Inouye is a professional freelance writer specializing in the areas of real estate, technology, and finance. Her professional experience extends to her work in property management, accounting, and brick-and-mortar retail, as well as a substantial background in journalism and thought leadership for businesses and high-net-worth individuals.