What is comparative market analysis?

Comparative market analysis is an evaluation done by either home buyers or sellers to ascertain how much a house would cost in a given locality. Comparative analysis is also carried out by real estate agents when they want to list a seller’s house in a local listing. Although it may not give the actual net worth of a house, it gives estimates according to the prevailing prices.

The importance of comparative market analysis (CMA)

A CMA is used to give a fair estimate of how much a house in a certain locality is worth. This is done by comparing the prices of already sold homes in that locality. The homes used for the comparison must be of nearly the same size, style and having similar or comparable fittings. This practice ensures that either a home buyer does not buy a home over the actual value or on the other hand, a home seller does not sell his home at a loss. It should be noted that competitive market analysis is entirely different from CMA. It is easier for a real estate’s agent to do the CMA for you as they are quite conversant with the listings of recently sold homes. Recently sold homes of the same category give a vague idea of how much a home should cost.

How to go about CMA

While doing a CMA, the sold homes are termed as the comparables and the home you are intending to buy or sell is known as the target property. To come up with a comprehensive CMA, five steps outlined below have to be used:
Define criteria This helps you to define the criteria for the homes that you will be using as comparables.
Create a list of comparables
These involve a redefined search of the above step. It includes a list of real estate comparables and recently sold property.
Get to see the comparables This is really a physical visit to the recently comparables. It gives the insight of whether your property is close-in-value to them.
Do statistical analysis
For the list of comparables, carry out a statistical analysis. This involves the actual sell-off prices of the comparables as opposed to what they had listed with.
Estimate the value or your home After the statistical analysis above, the results can give the buyer or seller a vague margin of how much the intended property is worth. The analysis can give an insight of how low or higher the home will sell at.

Conclusion

It is always wise to get into the market an enlightened person. This ensures you get a fair market and hence, a CMA is a must-have for any prospective home buyer or seller.