How to do comparative market analysis

A comparative market analysis (CMA) is an estimate of a home's value based on recently sold, similar properties in the immediate area. Real estate agents and brokers create CMA reports to help sellers set listing prices for their homes and, less commonly, to help buyers make competitive offers. Individuals can perform their own comparative market analysis by researching comparable properties (known as "comps") on real estate listing sites, such as realtor.com.

Table of Contents Show

What is a CMA?
How to Do a Comparative Market Analysis
Step 1: Know the neighborhood.
Step 2. Pre-assess the listing property online.
Step 3. Assess the property in person.
Step 4: Select comparable properties in the area.
Step 5: Prepare the comparative market analysis report.
Comparative Market Analysis Report Sample
Use a CMA to Your Advantage
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A comparative market analysis (CMA) is an estimate of a home's value used to help sellers set listing prices, and to help buyers make competitive offers.
The analysis considers the location, age, size, construction, style, condition, and other factors for the subject property and comparables.
If you're a buyer or seller interested in a CMA for a specific property, ask a local real estate agent or broker for help, or do your own research by comparing homes online.

A comparative market analysis helps sellers choose the best listing prices for their homes. The "best" price is the one that's not so low it leaves money on the table, and not so high that the home doesn't sell at all. For buyers, a CMA can verify if a home is a good deal and help pinpoint a competitive offer that will be taken seriously—without going overboard.

A CMA compares a subject property to other homes that are similar in location, size, and features. Ideally, a CMA uses recently sold homes from the same subdivision as the subject property. Of course, finding homes that sold within the last three to six months in the immediate area can be difficult if you're in a cool real estate market or a rural setting. In these cases, a formal appraisal might be a better option.

Note that while a comparative market analysis is like an informal appraisal, real estate agents and brokers don't always need an appraiser's license to perform a CMA while serving buyers and sellers. Still, some states will hold real estate agents and brokers responsible if they don't perform a CMA in a competent manner. If this happens, the agent will have to answer to the state's real estate licensing commission and risk disciplinary action.

When a real estate agent or broker conducts a comparative market analysis, they will create a report that details the findings. While there's no standardized CMA report, it will typically include:

The address of the subject property and three to five comparables
A description of each property, including elevation, floor plan, and the number of bedrooms and bathrooms
The square footage of each property
The sales price of each comp
Dollar adjustments for any differences
The adjusted sold price per square foot of each comp
The fair market value of the subject property

Many real estate agents and brokers use software to generate comprehensive (and professional-looking) CMA reports. If you plan to create your own, use a spreadsheet to keep track of your research or try an online home-price tool offered by one of the real estate listing websites. Below is an example of a CMA report.

A sample report.

A CMA involves much more than just comparing the prices of recently sold homes in the area. Here's a rundown of the basic steps for creating an accurate CMA:

To set the right listing price—or ensure a home you're interested in is a good deal—the CMA should take into consideration the general quality of the neighborhood. Where are the more attractive blocks? How close are community amenities? How close are community nuisances? What are the HOA rules? How are the schools? Are there any issues with curb appeal?

If a real estate agent or broker does the CMA, they will review the existing listing (if there is one) and make an in-person visit to gather information about the subject home. They'll take note of the home's size (particularly the liveable space), age, style, construction, condition, layout, finishes, landscaping, and upgrades and updates.

Find three to five comparable homes in the area that have sold recently and that are as close to the subject home as possible. Ideally, the comps will be within one mile of the subject property and in the same school district. Focus on homes that are like the subject home in terms of square footage, lot size, bedrooms, bathrooms, and type of construction. Pay close attention to when the comparable property sold: The more recent, the better because real estate prices can fluctuate rapidly. If the home has a unique location—such as overlooking a golf course or the waterfront—the comps should have the same placement.

The next step is to adjust for differences between the subject home and each comparable property. An experienced real estate agent or broker will be able to assign a dollar value to each of the differences and adjust the value of each comp accordingly. It may seem counter-intuitive, but if the comp has a feature that's inferior to the subject home, a positive adjustment is made to the value of the comp, and vice versa. As an example, if a comp has an extra bedroom (superior feature) it is reasonable to assume that the buyer paid more to get the extra bedroom. In this case, you would deduct an amount from the comp to account for the extra bedroom, thereby allowing for an apples-to-apples comparison. The value of the target home is never adjusted.

After adjusting for differences, divide the adjusted price of each comp by its square footage to determine the sold price per square foot. Next, add together the sold price per square foot of all the comps, and divide by the number of comps to get the average. Finally, multiply this average by the square feet of the subject property to find its current market value.

In general, the best comps are the ones that are the most similar to the subject home, the more recently sold, and the ones with the fewest adjustments required. The final price might need to be tweaked slightly, depending on the market. For example, if the market is hot or if inventory is low, the price might be slightly higher. Conversely, if there are a lot of similar homes on the market, the price might have to come down to be competitive.

One of the first steps when working with home sellers is setting the listing price of a home. When working with buyers, that first step is usually checking the value of a home before making an offer to purchase.

A home’s current worth can be difficult to pinpoint, and the best and most common way to find out how much a home is actually worth is by running a comparative market analysis.

What is a CMA?

A Comparative Market Analysis (CMA) is an in-depth report on a home’s current value. It’s prepared by real estate professionals by examining the sale prices of similar properties in the area. It tells homeowners what their home is worth in the current market, and helps homebuyers purchase at good value.

How to Do a Comparative Market Analysis

Step 1: Know the neighborhood.

A comparative analysis involves more than just doing the math on prices for houses in your area. In fact, an agent’s familiarity and experience with the local market can significantly affect a CMA’s accuracy.

To set the right price, you need to be familiar with the neighborhood and knowledgeable about the historical, current sale, and rental value of real estate in that area.

There’s been increasing popularity of single-family rentals in North America over the past decade — almost 50,000 of them built to rent in 2020, compared to about 14,000 built in 2010. If you’re not already acquainted with the neighborhood, check it out in person or via Google Street View.

Assess the overall quality of the neighborhood and identify the attractive and not-so-attractive blocks. Examine its proximity to parks, school districts, and other amenities.

Look at the curb appeal of homes in the area and identify any negative characteristics such as proximity to a noisy highway or dilapidated commercial buildings.

Step 2. Pre-assess the listing property online.

If the property in question is already listed, browse the listing online before viewing it with your client. This will give you a preliminary idea of what to expect before visiting it in person.

Gather as much information as you can about the property, including the year it was built, home size, lot size, construction type, architecture, and condition. Being informed will give you an advantage for your first meeting with the seller.

Step 3. Assess the property in person.

Visit the property in person to gather detailed information needed to prepare an accurate report.

Note its most important metrics, such as size, layout, age, condition, finishes, and landscaping, as well as any features that might add value, including a pool, finished basement, large garage, or oversized lot.

And, be on the lookout for issues that might affect the price negatively, like a roof in need of repair, poor overall condition, lack of central air conditioning, or other hidden issues.

Step 4: Select comparable properties in the area.

Choosing the best three or four comparable properties in the area is crucial for the accuracy of a comparative market analysis.

To make a selection, scan MLS, Zillow, Property Shark, or Redfin for properties recently sold or closed on, active listings, pending sales, and expired listings.

Then, consider these three important factors:

When the comparable property sold: In a hot real estate market where prices rise fast, the price of a home sold a year prior may be irrelevant today. The CMA report should examine properties with a date of sale as current as possible — ideally within the previous few weeks. If it’s a slow market and you’re using comps sold several months prior, you might need to adjust the prices based on how the market has evolved.
Where it’s located: The location of the comps selected should be as close to the subject property as possible. It’s best if they’re in the same neighborhood, subdivision, and school district, or within one mile of the listed property. Residential areas can vary from one block to the next. Some properties are located next to a quiet park, while others in the same neighborhood might be next to a busy road. These subtle changes can lead to significant price differences.
What its main features are: You should compare your listing against homes that have characteristics that are as similar as possible to the one you’re reviewing. This applies particularly to the number of bedrooms, baths, square footage, and lot size. If the selection size is generous, use properties with similar construction types and architectural styles. Homes with similar features are ideal, but this might not always be possible unless the home is located in a developed subdivision where all homes look the same.

Step 5: Prepare the comparative market analysis report.

Using a template report form provided with your MLS or other software solutions, enter the information you gathered for the comparable properties selected and for your subject property.

Some price adjustments might be necessary to compensate for the differences in structure and to better match the subject property. For example, if the property you’re pricing has three bedrooms and the one you’re comparing it to only has two, you’ll need to adjust the price accordingly.

Now it’s time to do the math. After making the necessary adjustments, divide the sold (adjusted) price of each property by its square footage to find the sold price per square foot.

Sold price of each property / square footage of each property = sold price per square foot

Then, multiply the calculated average price per square foot for your comparable properties by the square feet of your subject property to obtain its current market value.

Average price per square foot of comparable properties x square footage of subject property = current market value

To recap, your CMA report should contain:

The addresses of the subject and comparable properties
Information and characteristics of each property
Sold prices of the comparables
The total square footage of each home
The adjustment values for lot sizes, bedrooms, baths, and garages
The adjusted sold prices
The dollar-per-square-foot value
The subject property value

The final calculated listing price might need to be further modified, depending on how competitive the market is at the time. A high inventory of homes for sale could force prices down, while a low inventory might push your asking price upward.

Comparative Market Analysis Report Sample

When you have identified about three properties that have been sold in the same area with similar features, it’s time to put them into a spreadsheet for analysis. The following example is simplified and not based upon true market data:

With each property itemized, an agent can provide a breakdown of the cost of each feature and how it affects each home’s overall value.

The sales price of each of the three properties is adjusted to be nearly identical to the value of your desired property value. The more desirable features are deducted from the sales price of each property, while the less desirable are added.

The adjusted sales prices show the range of an appropriate offer of $402,500-$432,000. This range will reflect the offer price of the desired property with features they want.

During this part of the analysis, it’s important to weigh each property based on its similarity to the desired features. Property #2 had the most adjustments, so it is given the lowest weight. Property #3 had the least amount of adjustments and is given the highest weight. Once the weights are identified, the adjusted prices are multiplied by weighted value and added together to determine the offer.

The more accurate estimation for an asking price in this situation is $409,000 based upon similar homes in the area you found on the market.

Use a CMA to Your Advantage

Learning and understanding the purpose of comparative market analysis can save you money during your next house hunt — or earn you more when you decide to sell. Either way, doing your research and having the numbers to back it can help you negotiate a price more effectively.

Editor's Note: This post was originally posted in November 2018 and has been updated for comprehensiveness.

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Real Estate