SS253: What is a CMA in Real Estate?

SS253: What is a CMA in Real Estate?

A comparative market analysis, or CMA, is an important part of the real estate sales process. In this episode, Charles discusses what a CMA is and how it assists both buyers and sellers in making more informed decisions.

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Talking Points:

  • If you have ever listed or sold your home through a real estate agent, you have probably heard the term CMA, which stands for Comparative Market Analysis. A CMA will estimate a current home’s value by comparing the subject property to recently sold, currently listed, and expired listings in the same area, of the same size, condition, vintage, and features. Most real estate agents will create a free CMA for potential clients. CMAs are also generated for buyers, helping them to make more informed offers.
  • A CMA is similar to a Broker Price Opinion (BPO), but a CMA is typically a free marketing tool for a potential client. We talked about BPOs in episode SS123, and you can check out that episode if you would like to learn more about what a BPO is.
  • How Is a Comparative Market Analysis Prepared?
    • When a CMA is prepared, there are a number of factors that are taken into consideration.
    • 1. Comparable Properties, also known as “Comps.” The agent will research what has recently sold in the last 3-6 months, in the same or similar area.
    • 2. Property Characteristics. This is where the features of the subject property are compared to those of the comps. How many bedrooms and bathrooms? The square footage, the number of garages, the lot size, does it have a pool, or any upgrades, such as a new master bathroom or an upgraded kitchen?
    • 3. Market Trends. The CMA also measures the market, primarily by tracking the number of homes on the market, their duration, and whether the market is considered a buyer’s or seller’s market.
    • One additional side note is that unless there are exact Comps in your immediate area, the client needs to thoroughly review the Comps. If you are in a planned community of 200 nearly identical townhouses, you really don’t need to leave that community to find accurate Comps. Chances are, there have been sales, and there are current listings you can base your price and offers on, which makes it much easier to come to an accurate valuation. It gets tricky when there are no nearby comparables. Or the closest comparables with different features, such as one less bedroom or an extra half bath. One is 10 years older, but has an updated kitchen on a busy street. 
    • Rent comparables are one thing I spend a lot of time on when looking at apartment complexes and really map out where the Comps are. 
    • The best bet is to find a very experienced and active agent in your neighborhood to assist with buying or selling a property.
  • What Are the Differences Between a Comparative Market Analysis and an Appraisal?
    • A CMA is a free report that is designed to offer an estimated valuation of a property. An appraisal is an official valuation relied upon by lenders, which is paid for by the buyers through their mortgage closing costs.
    • Appraisals are completed by licensed and certified appraisers while real estate agents create CMAs.
    • CMAs are not a formal valuation like an appraisal, which is a detailed and standardized report used within the lending industry. 
    • I remember when I took my real estate agent exam, there was a section that explained how agents should not create appraisals unless they were licensed to do so.
  • A Comparative Market Analysis is not an official appraisal, but more of a pricing tool that is designed to assist buyers and sellers in understanding what a home is worth in the market conditions. While an appraisal is a formal, official valuation required for a home mortgage, it is included in the closing costs and paid by the buyers.

Transcript:

Charles:
Ever wonder how real estate agents figure out the right price for a home? Well, it’s not a guess. It starts with something called A CMA and without one, you’re basically guessing the home’s value. Welcome to Strategy Saturday. I’m Charles Carillo, and today we’re breaking down exactly what A CMA is in real estate, how it’s prepared, and how it’s different from an appraisal. So let’s get started. If you’ve ever listed or sold your home through a real estate agent, you have probably heard the term CMA, which stands for comparative market analysis. Now, A CMA will estimate a current home’s value by comparing the subject property to recently sold, currently listed in expired listings in the same area of the same size, condition, vintage, and features. Now, most real estate agents will create a free CMA for potential clients, and TMAs are also generated for buyers, helping them to make more informed offers.

Charles:
Now, A CMA is similar to a broker price opinion BPO, but A CMA is typically a free marketing tool for a potential client. And we talked about BPOs in episode SS 1 23, SS 1 23, and you can check out that episode if you’d like to learn more about what A BPO is. So how is a comparative market analysis prepared? So when A CMA is prepared, there are a number of factors that are taken into consideration. Number one is comparable properties, also known as comps. Now, the agent will research what has recently sold in the last three to six months in the same or similar area. Number two is property characteristics. This is where the features of the subject property are compared to those of the comps, how many bedrooms and bathrooms, the square footage, the number of grand, the lot size does have a pool or any other upgrades such as a new master bathroom or an upgraded kitchen.

Charles:
Number three is gonna be market trends. Now, the CMA also measures the market primarily by tracking the number of homes on the market, their duration, and whether the market is considered a buyer’s or sellers market. One additional note is that unless there are exact comps in your immediate area, the client needs to thoroughly review the comps. If you are in a planned community of 200 and you have the identical townhouses, you really don’t need to leave that community to find accurate comps. Chances are that there have been sales and there are current listings you can base your price and offers on, which makes it much easier to come to an accurate valuation. Now it gets tricky when there are no nearby comparables or the closest comparables with different features such as one less bedroom or an extra half bath. One is 10 years older, but it has an updated kitchen, but it’s on that busy street.

Charles:
Now, rent comparables are one thing I spend a lot of time on when looking at apartment complexes, and I really map out where the comps are and really the quality of those properties and the vintages and, and really the feature of those properties to see if they’re actually accurate comps. Now the best bet is to find a very experienced and active agent in your neighborhood to assist with buying or selling a property. So what are the differences between a comparative market analysis and an appraisal? So A CMA is a free report that is designed to offer an estimated valuation of a property. An appraisal is an official valuation relied upon by lenders, which is paid for by the buyers through their mortgage closing costs appraisals are completed by a licensed and certified appraisers while real estate agents create CMAs and CMAs are not formal valuations like an appraisal, which is a detailed and a standardized report used within the lending industry.

Charles:
And I remember when I took my real estate agent exam, there was a section that explained how agents should not create appraisals unless they’re licensed to do so. A comparative market analysis is not an official appraisal, but more of a pricing tool that is designed to assist buyers and sellers in understanding what a home is worth in the market conditions. Now, while an appraisal is a formal official valuation required for a home mortgage, it is included in the closing costs and pay for by the buyers. So I hope you enjoyed. Please remember to rate, review, subscribe, this make Common sometimes show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndication superstars that is syndication superstars. Look forward to two more episodes next week. See you then.

 

Links Mentioned In The Episode:

  • SS123: What is a BPO in Real Estate

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