What is a Comparative Market Analysis (CMA)?
A comparative market analysis (CMA) is an informed estimate of a home’s likely selling price. It is produced by comparing the subject property to recently sold, similar properties—called “comparables” or “comps”—in the same area. Agents, brokers, sellers or buyers can prepare a CMA to set a listing price or to decide whether an asking price is reasonable.
Key definitions
– Comparable (comp): a nearby property that is similar in location, size, age and features to the subject property and that has recently sold.
– Appraisal: a formal, license-required assessment of a property’s market value performed by a state‑certified appraiser. Lenders typically require appraisals for mortgage approval.
– Price vs. value: “price” is what a buyer pays; “value” is an appraiser’s or market estimate of what the property is worth.
When and why you use a CMA
– Sellers use a CMA to pick a competitive listing price that aims to attract buyers without leaving money on the table.
– Buyers use a CMA to judge whether an asking price is fair before making an offer.
– In low‑volume or rural markets where recent comps are scarce, a licensed appraisal may
be preferable.
How a CMA is built — step‑by‑step
1. Define the subject property. Note address, lot size, living area (sq ft), age, number of bedrooms/bathrooms, recent updates, and special features (pool, garage, view).
2. Select comparable properties (“comps”). Choose recent sales of similar homes within the same neighborhood (typically sold within the last 3–6 months). If few sales exist, include active and pending listings as supplemental indicators.
3. Collect raw data. For each comp record sale price, sale date, sq ft, lot size, beds/baths, condition, and non‑recurring items (e.g., major renovation).
4. Make adjustments. Quantify differences between each comp and the subject property and add/subtract dollar adjustments to the comp price to reflect those differences.
5. Reconcile results. After adjusting each comp to the subject property, take a weighted or simple average to estimate market value.
6. Convert estimate into a recommended list or offer price. Factor in market conditions (rising/falling/flat), marketing time desired, and seller objectives.
Making adjustments (method and formula)
Adjustments convert comp prices into an estimate of what each comp would have sold for if it matched the subject property exactly.
Basic formula:
Adjusted price = Sale price of comp + Dollar adjustments
Two common adjustment methods:
– Per‑unit (quantitative): e.g., $/sq ft × difference in sq ft.
– Lump‑sum (qualitative): e.g., +$10,000 for an upgraded kitchen.
Worked numeric example
Subject property: 1,500 sq ft, 3 bed / 2 bath, no pool, average condition.
Comps:
– Comp A: Sold $330,000; 1,600 sq ft; 3 bed/2 bath; upgraded kitchen.
– Comp B: Sold $310,000; 1,450 sq ft; 3 bed/2 bath; no upgrades.
– Comp C: Sold $340,000; 1,520 sq ft; 4 bed/2 bath; no upgrades.
Assumptions for adjustments (local market estimates):
– Value per sq ft = $100
– Extra bedroom (3rd to 4th) = +$8,000
– Upgraded kitchen = +$12,000
Adjust Comp A:
Size diff = 1,600 − 1,500 = +100 sq ft → adjustment = −($100 × 100) = −$10,000 (comp is larger so subtract)
Upgraded kitchen → adjustment = −$12,000 (comp had upgrade, subtract to make like subject)
Adjusted price = $330,000 − $10,000 − $12,000 = $308,000
Adjust Comp B:
Size diff = 1,450 − 1,500 = −50 sq ft → adjustment = +($100 × 50) = +$5,000 (comp smaller so add)
No other diffs.
Adjusted price = $310,000 + $5,000 = $315,000
Adjust Comp C:
Size diff = 1,520 − 1,500 = +20 sq ft → adjustment = −($100 × 20) = −$2,000
Extra bedroom → adjustment = −$8,000 (comp has extra bedroom)
Adjusted price = $340,000 − $2,000 − $8,000 = $330,000
Reconciling:
Adjusted prices = $308,000; $315,000; $330,000.
Simple average = ($308k + $315k + $330k) / 3 = $317,667.
Rounded estimate: about $318,000. Agent may recommend listing slightly above or below this based on market momentum and seller goals.
Interpreting CMA results
– Treat the CMA as an estimate, not a guarantee. It reflects recent market activity and the assumptions used for adjustments.
– If adjusted prices vary widely, investigate causes—non‑typical comp sales (distressed, investor sale), poor data, or rapidly shifting market conditions.
– Use size of the adjustment relative to sale price as a sanity check. Large cumulative adjustments reduce confidence.
CMA vs. appraisal vs. broker price opinion (BPO)
– Appraisal: performed by a licensed, state‑certified appraiser; often required by lenders; follows formal standards (e.g., USPAP—Uniform Standards of Professional Appraisal Practice).
– CMA: prepared by a real estate agent or broker for clients; not a certified legal appraisal; useful for pricing and negotiation.
– BPO: broker price opinion is a broker’s estimate, sometimes used by banks for REO (real estate owned) properties; less formal than an appraisal.
Common limitations and pitfalls
– Thin markets: few recent sales force larger, less reliable adjustments.
– Non‑arms‑length transactions: foreclosures or family sales can skew comps.
– Data errors: inaccurate sq ft, misreported sale dates, or unrecorded renovations can mislead.
– Market momentum: CMAs are backward‑looking; in fast markets, recent price trend adjustments are necessary.
Practical checklist before relying on a CMA
– Confirm sale dates and public record data for each comp.
– Prefer closed sales; supplement with pending and active listings only for context.
– Check for atypical sales (short sale, foreclosure) and treat separately.
– Use at least three credible comps; more is better when available.
– Document your adjustment rationale and rates (e.g., $/sq ft, bedroom value).
When to hire an appraiser instead
– Lender requires it for mortgage underwriting.
– Estate settlement, divorce, or legal purposes where a certified appraisal is needed.
– When the market lacks sufficient comparable sales or when a legally defensible valuation is required.
Tips for buyers and sellers
– Sellers: price a new listing within the activity band shown by adjusted comps to minimize time on market.
– Buyers: use a CMA to justify offer price and negotiation strategy; request seller disclosures and recent utility/bill history for corroboration.
– Both parties: ask for the CMA worksheet and understand each adjustment’s rationale.
Regulatory and professional standards
Appraisers follow USPAP and state licensing rules. Real estate agents are regulated by state real estate commissions and typically follow local multiple listing service (MLS) rules for data integrity. Know your jurisdiction’s requirements when valuing property.
Further learning and references
– National Association of Realtors (NAR) — Home valuation and CMA resources: https://www.nar.realtor
– Appraisal Institute — Appraisal standards and education: https://www.appraisalinstitute.org
– U.S. Department of Housing and Urban Development (HUD) — Appraisal guidance and definitions: https://www.hud.gov
Educational disclaimer
This content is for educational purposes only. It is not individualized investment, legal, or real estate advice, nor a market price prediction. Consult licensed professionals (real estate agents, appraisers, or attorneys) for decisions affecting your finances or legal rights.
Sources
– National
Sources
– National Association of Realtors (NAR) — https://www.nar.realtor
– Appraisal Institute — https://www.appraisalinstitute.org
– U.S. Department of Housing and Urban Development (HUD) — https://www.hud.gov
– U.S. Census Bureau (Housing data) — https://www.census.gov/topics/housing.html
– Zillow Research — https://www.zillow.com/research
Quick CMA checklist (step‑by‑step)
1. Define the subject property.
– Address, lot size, living area (sq ft), beds/baths, age, condition, major features (garage, basement, pool).
2. Select comparables (comps).
– Priority: sold within last 3–6 months, within the same neighborhood, similar size/age/bedrooms.
– Use at least 3 comps; more if the market is heterogeneous.
3. Record raw data for each comp.
– Sale price, sale date, distance from subject, differences in features.
– Note source (MLS ID, public record).
4. Determine dollar adjustments for differences.
– Estimate how much each feature is worth in your market (see methods below).
5. Adjust each comp to match the subject.
– Adjusted price
– Adjusted price — For each comparable, start with its sale price and add or subtract adjustments so the comp matches the subject. Use this sign convention: if the comp is superior (has a feature the subject lacks), subtract the dollar value of that feature; if the comp is inferior (lacks something the subject has), add the dollar value. The basic arithmetic:
Adjusted price = Comp sale price + Sum(dollar adjustments)
Note: adjustments can be positive or negative. Be explicit about the direction for each difference.
Example (single comp)
– Comp sale price: $420,000
– Differences vs subject: comp has a 2-car garage (+$15,000 value to comp), comp is 150 sq ft smaller (subject larger by 150 sq ft).
– If market value per sq ft = $150, then sq ft adjustment = 150 × $150 = $22,500 (add to comp because comp is smaller).
– Garage adjustment = −$15,000 (subtract because comp’s garage makes comp superior).
– Adjusted price = $420,000 + $22,500 − $15,000 = $427,500
6. Reconcile adjusted prices into an indicated value (estimate).
– Calculate mean, median, and weighted average of adjusted prices. Weigh by closeness (distance), similarity score, or recency (more recent sales weigh more).
– Discard clear outliers only if you can justify it (unusual sale conditions: foreclosure, estate sale, or private transfer).
– Produce a value range plus a point estimate. For retail use, present a suggested listing range (low–high) and a single recommended starting price if needed.
Worked example (three comps)
Subject: 3 bed / 2 bath, 1,800 sq ft
Comp A: sold $430,000, 1,750 sq ft (subject +50), no garage (subject has 1-car), sold 2 months ago.
– Sq ft adj = 50 × $150 = +$7,500 (comp smaller → add)
– Garage adj = +$10,000 (comp lacks garage → add)
– Time adj = small; assume 0 for 2 months if market flat
– Adjusted A = $430,000 + $7,500 + $10,000 = $447,500
Comp B: sold $415,000, 1,900 sq ft (comp +100), 1-car garage, sold 4 months ago.
– Sq ft adj = −100 × $150 = −$15,000 (comp larger → subtract)
– Garage adj = 0 (both have 1-car)
– Time adj = assume +1% total because market up 0.25%/month → +$4,150
– Adjusted B = $415,000 − $15,000 + $4,150 = $404,150
Comp C: sold $440,000, 1,800 sq ft (identical), 2-car garage (comp superior), sold 1 month ago.
– Garage adj = −$15,000
– Time adj = 0.25% appreciation → +$1,100
– Adjusted C = $440,000 − $15,000 + $1,100 = $426,100
Reconcile:
– Adjusted prices = $447,500; $404,150; $426,100
– Mean = ($447,500 + $404,150 + $426,100) / 3 = $425,917
– Median = $426,100
– Suggested value range = $405k–$448k; point estimate ≈ $426k
7. Document assumptions and sources.
– List each comp’s sale date, sale price, MLS ID or public record link, distance, and all adjustments with rationale (paired sales, market-per-square-foot analysis, local broker input).
– State any time adjustments and the data source (local market index, MLS median price trend, Zillow/Redfin indices).
– Disclose limitations: sample size, atypical comps, rapidly changing market.
8. Common adjustment methods (how to estimate dollar adjustments)
– Paired-sale method: find a sale pair that differs only by one feature (e.g., one home with a garage, one without) and measure price difference.
– Market-derived per-unit method: use market data to compute $/sq ft, $/bathroom, $/bedroom averages.
– Percentage method: express adjustments as percent of sale price (useful for expensive features relative to price).
– Cost-based method: estimate replacement cost of the feature (less common for CMA; used for major structural items).
– Best practice: use at least two methods where possible and reconcile.
9. Time adjustment (accounting for market movement)
– If the market changed between the comp sale and the valuation date, apply a time adjustment:
Time-adjusted price = Comp sale price × (1 + r × Δt)
where r = monthly appreciation rate (decimal) and Δt = months between sale date and valuation date.
– Example: comp sold 3 months ago, r = 0.5%/month → factor = 1 + 0.005 × 3 = 1.015 → multiply sale price by 1.015.
– Obtain r from local MLS median price trends or regional indices;
10. Location and neighborhood adjustments
– Why: Location (micro-neighborhood, school district, block) often drives value more than physical features. Adjustments convert comp prices to reflect the subject’s locale.
– How: Use percentage or dollar adjustments based on observed price differentials between neighborhoods (e.g., median price per sqft or recent sales comparison). Document the basis (map, sales list).
– Example rule: If nearby neighborhood A trades at +6% vs. the subject’s neighborhood, multiply the comp’s sale price by 0.94 to bring it to the subject neighborhood baseline (or subtract 6% of the comp price).
11. Lot size, land allocation and site-specific features
– Lot: Convert lot-size differences to dollar adjustments by estimating land value per square foot or by using sales of vacant lots nearby.
– Site-specific