What is a comparative market analysis?

When you’re looking to sell your current home, figuring out how much your property is worth in the current market can be a considerable challenge, especially as a residential property’s value is always somewhat subjective the owner considering it’s a home and not merely a building,

However, property pricing is actually quite an exact science and it’s therefore essential to appoint an experienced who will conduct a comparative market analysis (CMA) which is a tool they use to determine a property’s fair market value based on recently sold, similar properties in the immediate area.

This is no easy task since numerous factors determine the value of any particular home and compiling a CMA might seem complex but, when broken down into components, it’s easier to understand how, when viewed together, they give you a very accurate working estimate.

It is, however, quite a convoluted process that requires access to complete sales data and knowledge of local and national markets, which is why it should be completed by a licensed and experienced real estate agent.

How a CMA is prepared

The first step is to find three to five similar homes in the same neighbourhood that have sold within the past six months, but preferably three months.

But what makes a property similar? The following are factors that your agent will consider:

• Location is usually the most important factor.
• Square meterage/the size of the house.
• The number of bedrooms and bathrooms because, all things being equal, a house with more will fetch a higher price.
• Erf acreage which is a measurement of the size of the plot.
• The property’s age and condition are key factors because they speak to future maintenance costs. An older house which is likely to require repairs is usually not going to be worth as much unless it’s in an outstanding location or has historical or unique architecture.
• Special features and amenities like swimming pools, beautiful outdoor entertainment areas, additional garages and energy saving or producing features.
• The sale price of each comparable property.
• A reasonable price range for the property.

CMAs are only as accurate as the most recent sales data, so it should be remembered that a rapidly gentrifying neighborhood might not have strong comparable properties because when extensive upgrading is happening in an area, housing prices can change dramatically within just a few months.

There are also additional factors that the agent will consider when preparing a CMA:

• The neighborhood's general quality. For example, are there good amenities and schools in the area, are there any green spaces, are there any run-down properties in the neighbourhood, are the kerbs and exteriors of other homes and local amenities generally well-maintained?
• Terms of sale matter because some sale terms directly impact the seller.
• Current market conditions are the wild card with comparative analysis which is why its best to use comparative homes that sold as recently as possible.

Once any discrepancies between your property and the comparable homes have been noted, adjustments will be made and money added or subtracted from the base price, depending on whether each property is inferior or superior to the home being valued.

Although this might seem a little backward, it’s actually not. By accounting for these differences on paper and meticulously adding or subtracting, a more accurate comparison is made and a clearer picture emerges.

Most real estate agents will provide you with a CMA for free, especially if you are selling your home and this is, in fact, also a great way to make sure that this is the agent with whom you want to work as it will quickly reveal their knowledge of the market and of the area.

A CMA is also useful for buyers as it can assist them in negotiating asking prices and coming up with competitive offers in order to realise a good but realistic deal.