Determining the Value of a Home or Real Estate with a Comparative Marketing Analysis
A frequently asked question we get all the time is, what is a comparative market analysis in real estate and why is it important for a real estate agent to understand the importance of fair market value in housing prices.
Comparative Market Analysis
Real estate agents know that a comparative market analysis of the local market means you are getting an apples to apples comparison of similar properties of recently sold homes to make the selling process more informative for the listing agent.
The primary method appraisers use to develop an opinion of value for a home is through the sales comparison approach. Some people call it a comparative market analysis. The sales comparison approach has the appraiser look at the market, looking through the MLS and other sources for sales from the past few months, usually no more than the past 12, for sales of homes as similar to the subject as possible.
The theory being that if there is a set of 5-6 houses that are very, very similar to the subject in age, size, quality and utility that sold in that time frame from $500,000 to $550,000 then the subject is likely worth somewhere in that range. The subject, had it been for sale in that same time frame, would have sold in that range.
The appraiser can narrow the range by adjusting for significant differences. As an example, say your house has a 2-car garage. In looking at the sales you can see the homes with a 3-car garage, but in all other regards nearly identical to the subject, sold for more than the homes with a 2-car garage. The appraiser would then adjust the sales price of that sale down, to reflect its superior garage count and getting closer to the apples to apples comparison we’re looking for.
The appraiser will often also look at active listings and pending sales to help inform their conclusions as well.
A Realtor will typically complete their own Comparative market analysis or CMA on a prospective listing, and the better agents will do this same thing for their clients making an offer on a home.
A CMA from a Realtor differs from an appraisal in a number of key ways. The appraiser typically has a much narrower scope for what is a “comp”, likely using sales that are more similar, without regard to their sales prices. The Realtor also often places more weight on active listings and pending sales, where an appraiser typically must rely on actual closed sales.
The biggest difference between a CMA from a Realtor and an appraisal is that the appraiser has no vested interest in the conclusion. A Realtor completing a CMA wants to give their client good information, but also, at least equally, wants the CMA to help get the listing.
You pay an appraiser for an unbiased, disinterested result, developed and supported by market data, knowing that the appraiser has no motive in the process other than your full understanding of the conclusion.
