What Is Comparative Market Analysis?
Even if you’re not considering selling your home at the moment, it’s wise to know the market value of your property. Having a clear understanding of your home’s selling potential can help guide you in a wide range of financial decisions. The best way to determine a property’s market value is by using Comparative Market Analysis (CMA). Let’s talk about the basics.
What is CMA? CMA is a tool used by real estate professionals to assess a home’s market value. This is done by comparing that property to similar ones recently sold in the surrounding area.
How does the tool work? CMA works by evaluating certain factors that influence a property’s value and comparing those factors to recently sold properties. Similar attributes, such as location, size, condition and amenities, are taken into consideration. Real estate professionals collect data on comparable properties, analyze recent sales prices and make adjustments based on any differences between the properties. (You can also help by providing them with additional details about your home, specifically recent updates you’ve made.) The resulting price range gives you, the seller, a realistic expectation of what you could expect if you decide to put your home on the market.
CMAs vs Appraisals
A comparative market analysis and an appraisal are real estate terms that relate to determining your home’s value. But how do they differ? Here’s what you should know.
Appraisal is a bank process. An appraisal is typically initiated by the lending institution to ensure that it is not over-funding the purchase of a property. An appraiser is an impartial third-party entity whose responsibility is to observe, document and factually report on the home to establish its fair market value.
A CMA is an agent process. A CMA is facilitated by your real estate agent, who works to determine a suitable listing price for your home by studying comparable properties (“comps”) that were recently sold. Information for this analysis is sourced from the Multiple Listing Service (MLS), a database of property listings shared among real estate agents. It’s worth mentioning that the MLS is exclusive to real estate professionals. This is one benefit when using an agent to sell your home instead of listing as a FSBO (For Sale By Owner).
When conducting a CMA, your agent focuses on homes with similar characteristics to yours in terms of size and features. The CMA provides details on properties presently on the market, those under contract, sold properties, and those that didn’t sell. Moreover, the CMA offers a low, median, and high pricing range for your home. A CMA can also offer the current estimated days on market based on homes similar to yours. While a CMA isn’t a precise method, it delivers fairly accurate results regarding an appropriate listing price.
Local (And National) Market Trends
Available inventory: Both local and national market trends are driven by the fundamental principles of supply and demand. If there’s a high demand for homes but a limited supply in your area, this can drive up home values. Conversely, an oversupply of home inventory can reduce demand and decrease your home value.
National trends: Unemployment rates, GDP growth and consumer confidence can influence the buying power of potential homeowners. A strong economy can drive higher home values because people tend to feel more confident about purchasing homes. Lower mortgage interest rates, set at the national level by central banks, generally make mortgages more affordable, leading to increased demand and potentially higher home values.
Local trends: New schools, transport links or commercial developments can make an area more desirable and increase local home values. An influx of residents (due to job opportunities, lifestyle changes or other factors) will also usually increase the pool of interested buyers, creating a competitive market that drives prices higher. On the other hand, declining populations or job opportunities can have the opposite effect.
How do you know if shifting local or national trends have impacted your property value? Ask an experienced ERA agent for a comparative market analysis and find out if your home is more or less valuable in the current market. At ERA First Advantage Realty, we know experience matters and we know our local housing market well. Connect with a local ERA agent today!