What Is a Comparative Market Analysis (CMA)?

How Homeowners and Buyers Use CMAs

If you're a homeowner selling your residence, you'll want to know how much your property is worth today. And if you're a buyer, you want to be certain that you're not overpaying for a home when you make an offer.

This is where a comparative market analysis, also known as a CMA, comes in: This tool can help both buyers and sellers understand the current market value of a home and protect everyone from making poor financial decisions.

CMA Meaning in Real Estate

A comparative market analysis helps home sellers determine the fair market value of their residence, which is the amount it will likely sell for in today's real estate market. A CMA is a key factor in the pricing strategy of homeowners: They can use this tool to set the highest possible listing price that will still attract the most offers.

Buyers might also ask their REALTORS® to create a CMA on a home they want to buy. Buyers can use this research when negotiating a fair price for a home they want to purchase.

A CMA includes the location of the home, its number of bedrooms and bathrooms, its total square footage, its age, and its condition. It also factors in any upgrades that owners have added. A larger home in a desirable neighborhood with an updated kitchen will usually have a higher fair market value.

A comparative market analysis also looks at the sales prices earned by similar homes in the neighborhood, usually within a mile of the home, that sold during the last three to six months. If three homes of the same size and age sold for $350,000 to $400,000 during the last three months, sellers can expect that their property will sell for a similar price.

Who Creates a Comparative Market Analysis?

REALTORS® and brokers are the professionals who typically create a comparative market analysis. The goal is to help their clients who are selling a home determine the fair market value (FMV) of their property.

CMA vs. Appraisal: What's the Difference?

Don't get a CMA confused with an appraisal.

A CMA is an informal analysis used to help home sellers and buyers determine an asking or sales price for homes on the market. An appraisal is a formal analysis of your home conducted by an appraiser to determine your home's current market value. When you are buying a home, your lender will require that you pay for an appraisal to make sure that you are not paying more for the home than what it is worth.

You might also pay for an appraisal of your home when you want to refinance your mortgage. Lenders typically require 20% equity in your home before they approve your refinance request. To determine how much equity–the difference between what you owe on your mortgage and what your home is worth–you have, an appraiser will first determine its current market value.

CMA vs. Real Estate Comps

A CMA is also not quite the same thing as real estate comps, though real estate comps are part of a CMA.

Real estate agents search for real estate comps, or comparables, when they prepare your CMA. Comps are recent sales of homes similar to yours in your market, and by looking at these, agents can better determine an appropriate listing price.

CMA vs. Online Estimates

It is possible to get an online estimate of your home's value from several real estate websites. These tools can give you a rough estimate, but you shouldn't rely on them when determining a listing price.

Your REALTOR®'s CMA is a much more accurate tool that relies on current market data and key information about your home.

Should You Get a CMA?

If you're buying or selling a home, a CMA is a must. This tool will help you set the right listing price if you are selling and can prevent you from overpaying if you are buying by looking at comparable properties.

How a CMA Helps Homebuyers

While CMAs are mostly used by home sellers, these tools can also benefit buyers in several ways:

• Developing an offer strategy: When you find a home on which you want to make an offer, you can ask your REALTOR® to make a CMA on the property. This will help you make a competitive offer on a home.
• Acting as negotiation leverage: You can use a CMA when negotiating on the final sales price of a home on which you've made an offer. Say the seller wants you to pay $380,000 but your REALTOR®'s research indicates that the home is worth $350,000 in today's market. You might be able to use your CMA to negotiate a lower final sales price.
• Understanding market trends: A CMA on a home that you like can also help you understand the housing market in the area in which you want to buy. Maybe you were hoping to spend a maximum of $350,000. But if your REALTOR®'s CMA shows that homes in the area are selling far beyond your range you might have to boost the amount you are willing to spend or look in a different community.

How a CMA Helps Homeowners

CMAs are especially useful for homeowners who hope to sell their homes at the highest possible price.

• Informing accurate pricing: The key to a successful sale is to set an accurate listing price for your home. Your REALTOR® will consider your home's age, size and location as well as nearby home sales to help find a listing price that will attract the most offers but also won't be so low as to leave money on the table.
• Providing a competitive advantage: A professional CMA can also give you a competitive advantage over other comparable homes for sale in your area. A CMA will list your home's best features–including any upgrades you made–and provide a data-driven justification for your sales price. This could convince buyers that they aren't overpaying for your home and instead are getting it at a fair price.
• Understanding your equity: The more home equity you have, the greater your profit when you sell. If you owe $200,000 on your mortgage and your CMA says that your home's fair market value is $380,000, you know you have around $180,000 in equity. This can give you an idea of how much profit you'll walk away from after you discount any fees or closing costs you must pay.

Other Uses for a Real Estate CMA

While CMAs are most often used for setting the right asking price for a home, there are other uses for these tools:

CMA and Government-Backed Loans

A CMA can also play a key role if you are using a government-backed mortgage instead of a conventional loan to buy a home. FHA, VA and USDA loans all require appraisals before the home purchase can go through. They also might have stricter requirements for the property itself, and your lender won't loan you more money than what a home is worth. By compiling a CMA before you make an offer, your REALTOR® can help you avoid a scuttled home purchase resulting from an appraisal that's too low.

Using a CMA for Refinancing and Equity

You can use a CMA to help determine if you have enough equity to refinance your existing mortgage. Most lenders require that you have at least 20% equity in your home to refinance. A CMA can help you determine your home's fair market value, or the price that it would fetch in today's market. Know, though, that your lender will typically require an appraisal of your home before approving your refinance request even if a REALTOR® conducts a CMA of your property.

Comparative Market Analysis FAQs

Have questions about how CMAs work and the role they play in home sales? Here are answers to some of the most common ones.

How Much Does a Comparative Market Analysis Cost?

If you are working with a REALTOR® to buy or sell a home, that agent will usually compile a comparative market analysis for you for free, including it as part of the basic services that the agent provides. Some agents, though, might charge $100 to $200.

How Long Is a CMA Good For?

Depending on the housing market in the area in which you are buying, a CMA is typically accurate for 30 to 90 days. In fast-changing markets in which home prices rise or fall quickly, a CMA might need to be updated more frequently, such as every 30 days.

Can I Do My Own CMA?

You can attempt to create your own CMA, searching online for recent home sales in the market in which you want to buy. But it's better to request one of these analyses from a real estate professional, as they can provide a more accurate fair market value.

Does a CMA Affect My Property Taxes?

A CMA will not cause your property taxes to rise. That's because your county assessor's office will determine your home's assessed valuation and how much you'll pay in property taxes. Your local assessor's office won't even see a CMA that your REALTOR® prepares.

Final Thoughts: Comparative Market Analysis

A comparative market analysis is a useful tool whether you're selling or buying a home. If you are selling, it gives you insight into how much of an asking price you should set for your residence. If you are buying, a CMA can help you avoid paying more for a home than what it is worth.

If you've done your research and are ready to apply for a home loan, you can get started on a mortgage application with Freedom Mortgage today.