When a real estate professional lists a residential property for sale, she typically prepares a comparable market analysis, or CMA, to estimate the current value of the property. The agent then shares this information with the property owner, to help the owner decide on an asking price. The CMA uses sales data on recently sold properties in the neighborhood to arrive at the estimated value. This is just an estimate and not a guarantee the property owner will receive that amount from a buyer.
Inventory Subject Property
The first item on the real estate agent’s checklist when preparing the CMA is inventorying the subject or listing property. The agent identifies specific details about the property and notes any outstanding characteristics, features or amenities of the subject property that might enhance its value. Items the agent considers are the property’s age, size, lot size, roof type, number of bedrooms, architectural type, flooring and counter types and additional features, such as swimming pools and extra garages.
Collect Comparable Properties
After itemizing characteristics of the subject property, the agent must find comparable sold properties. These are similar properties that sold within the last six months located in the same neighborhood as the subject property or a similar nearby neighborhood. If the real estate agent is a member of a multiple listing service, he normally looks at the MLS data for recently sold properties for comparables. For accurate data, he focuses on sold listings, not on current listings. Current listing prices only reflect what a seller is asking, not what a buyer is willing to pay.
Next on the agent’s list is identifying three comparables that best match the subject property. He can use more, but three is typically a sufficient number. Sometimes the agent eliminates some comparables that don’t accurately reflect value. For example, if one property sold for a fraction of the actual value, because the buyer was the seller’s family member, for example, and the sale was only a formality, the agent should discount the property.
After identifying the three best comparables, the agent adjusts the sale prices. While the subject property may be similar to a comparable, it likely is not exactly the same. To compensate, the agent adds or subtracts to each final sale price. If a comparable property has a feature that adds value that the subject property does not have, the agent reduces the final sale price of the property, to compensate for the value of the feature. If the subject property has the feature and not the comparable, the agent adds the value of the feature to the final sale price instead of subtracting. The amount of value varies by region and local custom, yet is typically less than the actual cost of the feature.
The final item when preparing the CMA involves averaging the adjusted sale prices. To do this the agent adds up the adjusted sale price and divides that number by the number of comparables. If he used three comparables, he divides by three. This gives an average estimated value for the subject property.
- "Modern Real Estate Practice"; Fillmore Galaty, et al.; 2006
Ann Johnson has been a freelance writer since 1995. She previously served as the editor of a community magazine in Southern California and was also an active real-estate agent, specializing in commercial and residential properties. She has a Bachelor of Arts in communications from California State University, Fullerton.