Blog Real Estate Best Practices Comparative Market Analysis: Step-by-Step Guide

Chris Heller, Licensed Agent9/15/2024

If you’re ready to enter the world of real estate and be successful, you have to know your market. That means more than what’s available or who might be interested in selling. It means diving deep into the factors determining your target market’s property values. 

Conducting an accurate comparative market analysis is one of your business’s most effective skills and crucial elements. Your clients will thank you for it! 

We’ll go through the essential steps of creating your comparative market analysis, providing you with a comprehensive understanding of what and how to implement your analysis into your workflow with ease. Side note: I always found this process fun…

Key Takeaways:

• Comparative Market Analysis is a way to assess a property’s value by comparing the features and price points of similar nearby properties. 
• What to include regarding location, size, features, year built, amenities, and condition in your comparative market analysis
• How to create one involves determining which properties to analyze to help you find the most accurate property value for your clients. 
• Effective use of your CMA means relaying the information clearly to your clients so they can make the best decisions with your guidance and trust your expertise. 

What is a Comparative Market Analysis (CMA)?

A Comparative Market Analysis (CMA) is a process of finding similar properties to the one you are eyeing to list or rent (typically) and comparing them against your property to determine the best possible listing price, or fair market value, for your clients.   

Your “comps” will be properties that have recently sold in the same area that have similar features like square footage, yard, garage, number of bedrooms and bathrooms, etc. 

Understanding this process fully is vital for setting realistic pricing and providing accurate advice to your clients. They help you set competitive pricing and can help you advise buyers on reasonable and educated offers. 

What Should I Include in a Comparative Market Analysis?

A thorough comparative market analysis should encompass several key elements to give a full picture of what goes into the most accurate suggestion for pricing and the property’s value. Missing a crucial element could be costly…

For example, let’s say you’re comparing two properties at a nearby lake. The property you are listing has a slip (dedicated spot to dock and keep a boat) deeded to the house, BUT your comp does not…  that’s a huge factor that would increase your property’s value. 

This is a pretty specific example, but illustrates that you should think pretty broad and make sure to include several different aspects that could affect the value. 

Key Elements of a CMA:

• Basic Property Details
  • • Age
    • Condition
    • Style
• Price Per Square Foot
• Lot Size – Acreage
• Market Trends
  • Time on the market
  • Number of available house on market
• Location: 
  • Proximity is crucial 
  • Note the advantages of distance to lifestyle: distance to neighboring schools, golf courses, lakes, restaurants, etc.
• Walkability Score
• Size
  • Number of bedrooms and bathrooms
  • Does it have a useable basement, attic, garage (how many cars)
• Condition
  • Recent Renovations
  • Upgrades
  • Roof last replaced
• Comparable Properties:
  • Listing price and final selling price
  • Property Tax
  • HOA Fees
• All Amenities
  • Private pool, access to neighborhood pool, gated community, country club membership, guest house, dock access
• Adjustments and Rationale
  • Justify any adjustments made in your comparisons

How Do I Do It?

There are several steps to incorporate into building your comparative market analysis that blend research, analysis, and presentation. 

Some Resources to Help You:

• MLS (Multiple Listing Service): Primary source for finding comparable properties.
• Public Records: Useful for additional data on property history and sales.
• Real Estate Software: Tools like Cloud CMA can help streamline the process.

What are Considered Good “Comps” to Use?

Selecting the right properties to compare can be tricky, but there are 3 areas to focus on when you set out to find properties to help you determine a competitive price point for your clients: 

• Proximity: Set a determined “circle” around your property and find properties within a short distance or, ideally, within the same neighborhood. 
• Recency: Sales should be recent, typically within the last 3-6 months, to reflect current market conditions.
• Similarity: Properties should be similar in size, age, style, and condition. Keep in mind, the more alike they are, the more reliable the comparison.

Step-by-Step Guide to Conducting a CMA

1. Define the Subject Property:
2. Research the Market:
   • Find recent sales and current listings in the same neighborhood.
   • Identify 3-6 comparable properties.
3. Analyze Your Comps:
   • Put all of the key elements we listed above into an easy to read chart or Excel, so  you can see at a glance how many of the properties have a garage or don’t for example. 
   • Make notes on what might increase or decrease value after you input all of your data points into your Excel. Make additional notes on which houses sold for more, less or right at asking price.
4. Calculate the Market Value:
   • Estimate the value using the average prices of the comparables.
   • Adjust your suggested pricing based on the unique features of your property that you may or may not have in comparison. 
5. Prepare Your Report:
   • Create visually simple-to-understand charts or tables to present your findings clearly.
   • Summarize the determining factors that helped you arrive at your conclusion for pricing. 
6. Present to Clients:
   • Use visuals if you can, which can include photos
   • Justify your suggestion and be prepared to answer questions about adjusting the price. 

What are Considered Good “Comps” to Use?

Selecting the right properties to compare can be tricky, but there are 3 areas to focus on when you set out to find properties to help you determine a competitive price point for your clients: 

• Proximity: Set a determined “circle” around your property and find properties within a short distance or, ideally, within the same neighborhood. 
• Recency: Sales should be recent, typically within the last 3-6 months, to reflect current market conditions.
• Similarity: Properties should be similar in size, age, style, and condition. Keep in mind the more alike they are, the more reliable the comparison.

How Do I Use a CMA Effectively?

Using a CMA effectively means way more than just calculating a property’s value. It’s about leveraging your knowledge and discoveries to prove to your clients that this is the best possible pricing or offer decision to support their investment.

For sellers, an extensive CMA helps set a competitive price that will sell quickly. It provides a realistic view of what the property could sell for in the current market against what others have recently done. Use it to justify your pricing strategy and to manage client expectations.

For buyers, a CMA is a tool to you can use to help them make educated offers they feel comfortable with. Having this in your back pocket also helps in negotiating the best price on behalf of your clients by showing how the property compares to others. 

What Other Agents Say About Using CMAs on Reddit and YouTube

Seasoned agents often share valuable insights on platforms like Reddit and YouTube about conducting and using CMAs effectively. Here’s what they often highlight:

• Experience and Expertise: Many agents emphasize that mastery comes with experience. The more CMAs you conduct, the more intuitive the process becomes.
• Market Knowledge: Stay up to date with market trends! 
• Client Communication: Clearly communicating your findings and educating clients about the market are key.

Tips from the Pros:

“Offering free CMAs to potential clients is something I’ve found very helpful over the years. Early in my career, it was how I earned my first listing – the owners had been thinking of selling and my no-pressure CMA showed the market was primed. Since then, I’ve closed many deals just from clients who came for an assessment and decided to list with me after the fact. It’s a great way to start a conversation and build trust without coming across as pushy from the get-go.

The step I believe is most important is evaluating comparable properties. If that analysis is off, the whole report falls apart. I take time vetting each comp, confirming details like lot size myself rather than just relying on listing info. Site visits are especially useful for getting a true sense of updates and conditions. Doing the legwork there pays off in credible, reliable findings that earn clients’ confidence in your recommendations.” (from Ryan Fitzgerald, an experienced realtor and the owner of Raleigh Realty)

“Agents don’t make the market, they interpret it but getting a CMA wrong has negative consequences for the seller, buyers, and other agents. There are many ways to interpret data, so collaboration is very important if reviewing active, pendings and solds does not create a clear valuation.

Reviewing your CMA with other agents may lead to finding an off-market property or connecting to another expert for an area or unique type of property. Real estate is an industry where we are always learning. Getting a valuation right the first time is critical for our clients so it sells quickly and for the highest price.” (from Trey Langford, Licensed agent for 17+ years)

“Performing accurate and insightful Comparative Market Analysis is so important for both clients and myself as a real estate professional. Thorough preparation is crucial for presenting a CMA. I always make sure to understand my client’s specific goals and needs before diving into the data. Tailoring the presentation with their wishes in mind helps ensure the information provided will be truly useful.

Visual elements like charts and photos are also very helpful for laying everything out clearly. More than anything, I focus on being open and honest. An realistic assessment is much better than inflating values just to please someone.” (from Crystal Olenbush, one of Austin’s top luxury Realtors)

Summary

Conducting a Comparative Market Analysis (CMA) is an essential skill for any real estate agent. You can truly set yourself up for success with all of the research you will conduct that will last for long-term growth.

Remember, a well-executed CMA is more than just numbers; it’s a powerful tool to build trust and demonstrate your expertise to clients. Keep practicing and refining your skills, and soon, you’ll be conducting CMAs with the confidence of a seasoned pro.