Preparing a comparative market analysis
A comparative market analysis (CMA) estimates what a property is likely to sell for by comparing it with similar properties nearby. Licensees prepare CMAs to help sellers set a list price and to help buyers decide what to offer. The property being priced is the subject; the similar properties are comparables ("comps").
A CMA uses the same logic as the sales comparison approach an appraiser uses (unit 16), but it is a pricing tool, not an appraisal (lesson 5).
Step 1: Gather comparables
Good comps are as similar to the subject as possible: same neighborhood or subdivision, similar size, age, style, condition and features, and sold recently. Fannie Mae's appraisal guidelines, for example, ask for at least three closed sales, prefer sales from the last 12 months and from the subject's own neighborhood, and treat listings and pending contracts as supporting data only.
A CMA usually looks at three groups:
| Group | What it tells you |
|---|---|
| Sold (closed) | What buyers actually paid. The strongest evidence of value. |
| Active listings | The competition. Buyers will compare the subject with these, and asking prices often run higher than final sale prices. |
| Expired listings | Homes that did not sell during the listing term. They often show prices the market rejected. |
Pending sales (under contract, not yet closed) show where the market is heading, but they have not closed, so the final price is not yet certain.
Step 2: Adjust each comp toward the subject
No comp is identical, so you adjust each comp's sale price to estimate what that comp would have sold for if it were just like the subject. HUD's appraisal handbook states the rule simply: adjustment is always made from the comparable to the subject. You never adjust the subject.
Comp better than subject → subtract. Comp worse than subject → add. "CBS": Comp Better, Subtract.
Why subtract when the comp is better? The comp's buyer paid extra for that feature. The subject doesn't have it, so take that amount out. Fannie Mae's guidance gives the same logic for size: when the comp is larger, the adjustment should be negative.
Example: a comp sold for $350,000 and has a pool worth $15,000; the subject has no pool. The comp is better, so subtract: $350,000 − $15,000 = $335,000.
If a comp is worse (no garage when the subject has one), add the garage's value to the comp.
Adjustments are dollar amounts based on what the market pays for each feature. Size is often adjusted per square foot of difference.
Step 3: Reconcile to a price range
After adjusting, each comp gives an indicated value for the subject. Do not just average them blindly. Reconciliation means weighing them:
- Give the most weight to the comps that are most similar and needed the fewest and smallest adjustments.
- Give more weight to recent closed sales than to listings.
- Use active and expired listings to sanity-check the range: if the subject is priced above homes that expired unsold, it will probably sit too.
The result of a CMA is usually a price range with a suggested list price, not a single precise value.
Price per square foot
A quick check is to divide each comp's price by its living area and apply the figure to the subject. A comp that sold for $378,000 with 1,800 square feet sold for $210 per square foot. At $210, a 2,100 square foot subject indicates $441,000. Price per square foot ignores differences other than size, so it is a cross-check, not a substitute for adjusting.