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Determining a Home's Value: The Art and Science of CMAs

When buying or selling a home, accurately pricing it is crucial. While factors like location, size, and amenities are obvious considerations, a professional comparative market analysis (CMA) provides a more precise valuation.

A CMA compares your property to similar recently sold homes in your area, considering factors such as age, condition, features, lot size, and market trends. This comprehensive approach gives you a reliable estimate of your home's fair market value.

In order to conduct the analysis, agents search for recently sold homes in the same area that are as similar to the subject property as possible.

These homes, which are known as comps, or comparable sales, are used to conduct a sales comparison approach to pricing. This approach relies on the premise that you can figure out how much a home is worth by identifying how much it would cost to purchase a similar home of equal desirability.  We call this report a Comparative Market Analysis or a CMA.

The Rule of Three

The first step in preparing a CMA is to find three homes that have sold recently (within the past 6 months at most, but preferably 3 months). These three homes should be as similar and located as closely together as possible.

Once at least three

comparable sales (comps) are selected, each one is thoroughly examined to identify differences from the subject property. These differences are itemized and priced out to adjust the sales price of each comp, estimating its value if it were nearly identical to the subject property and sold in the current market.  1.  www.rocketmortgage.com www.rocketmortgage.com

Understanding the Difference Between CMAs and Appraisals

While both CMAs and appraisals use housing market indicators to compare and identify regional home values, they serve different purposes. Appraisals are conducted by licensed appraisers to create official valuations, while CMAs are completed by real estate professionals to estimate fair market value.

Although the resulting value from a CMA is an approximation influenced by the seller or buyer's goals, it is a complex process requiring technical knowledge of the market and how various factors impact property value.

Considering Market Conditions

Market conditions can significantly impact property values, so it's crucial to use recently sold homes for the CMA. A strong buyer's or seller's market can affect CMA values.

For example, rapidly gentrifying neighborhoods might not have strong comparables due to rapidly changing housing prices. In such neighborhoods, even if buyers and sellers agree on a price, an appraisal may be needed to justify the value for financing purposes.

Components of a Comparative Market Analysis

A CMA involves several key components:

• Location: Ideally, comps should be located in the same neighborhood. If not, they should be in a similar area with comparable schools, crime rates, noise levels, and amenities.
• Lot Size: Differences in even half an acre can significantly impact a home's price.
• Square Footage: Larger homes generally have higher values, so livable square footage is important.
• Age and Condition: Newer construction and homes with high-end materials are often valued higher, but well-maintained historical homes can also be valuable.
• Bedrooms and Bathrooms: More bedrooms and bathrooms typically increase a home's value.
• Special Features: Features like fireplaces, patios, pools, garages, and finished basements can influence value, but their impact varies by local market.
• Date of Sale: Comps should be recent (within 3-6 months) to reflect current market conditions.
• Financing and Sale Terms: Buyer financing and sale terms can affect price. Seller concessions or buyer contingencies might impact the value.

The Importance of a CMA

A CMA is a valuable tool for estimating real estate value. For sellers, it helps determine a suitable asking price. For buyers, it assists in negotiating offers and understanding market conditions.

However, preparing a CMA is a complex process requiring market knowledge and data. That's why it's best handled by a licensed real estate agent.

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