What You need to know about A Comparative Marketing Analysis

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You are interviewing a Realtor to list your home.  The agent pulls out a Comparable Marketing Analysis (or CMA) which, among other things, provides an average Days On Market (DOM) and suggested sale price.  The report says your home should sell for X amount of dollars in about 30 days.  Before you get too excited, make sure your agent is using true sale comparables.

A CMA is comprised of sale comparables (comps) obtained from the MLS.  Agents can pick and choose which comparables they want to include in the CMA.  Yes, that means we are manipulating the data, but it is critical that we are able to do so.  If we weren't selective about the comps we used and just included every sale that occurred in the area of the subject home, the CMA could very well be of little or no use.  One of the sales might be a home with severe structural problems, one might be a home with some real aesthetic challenges, one might be a home with functionality or locational challenges, and one might even be a foreclosure property.  Homes like these take longer to sell (which will impact your DOM) and they also negatively impact the sale price average.   An experienced Realtor knows not to include those home sales (unless, of course, the subject home falls into any of those categories) so we have to be selective about which sale comps we use.

If we are preparing a CMA, we do our best to make sure the comparables we use follow these rules ...

• The comps should be within a fairly close proximity to the subject home.  Homes within the same subdivision would be ideal, but sometimes they just aren't out there in smaller subdivisions.

• The comps should be within the same general price range of the subject home. You cannot use million dollar home sales to price a $400,000 home and visa versa.

• The comps should be on homes with similar lot values.  Creek, cul-de-sac, oversized, and wooded lots will command higher prices and that is reflected in the sale price of the home. 

• The comps should be within the same school district.  This can sometimes really impact both the pricing and average DOM.

• The comps should be on homes of the same general age.  You cannot accurately compare a home built in 2006 with a home built in 1990.  For older homes, I sometimes have to use homes built two years on either side of the subject home just to get some comparables to work with.

• The comps should be of the same level of interior finishout as the subject property.  Interior finishout can vary greatly on two homes sitting side by side.

• If the subject home has a pool, the comps should have pools and visa versa.  If not, you have to make some realistic adjustments for the costs of a pool. 

• The comps should be about the same size as the subject home.  You cannot accurately compare the pricing of a 2,500 sf home to a 5,000 sf home.

• The comps should be fairly recent if at all possible.  Appraisers don't like to go back more than about 6 months for sales, but sometimes there are just no recent sales.  This can be a real problem.

• You should have a sufficient number of comps to draw some kind of reasonable conclusion from.  Pricing a home in a slow selling area or smaller niche area is one of the toughest challenges any Realtor will face.  How do you arrive at a price without comparables to draw from?

I personally sell homes in areas that may have only three or four of the criteria mentioned above.  I rarely enjoy the luxury of having more than two or three comps to draw a conclusion from.  Even the lots these homes are sitting on can vary greatly in pricing.  One home might be on a one acre bald lot, but there is a very similar home to it in quality on a 2 acre, wooded, creek lot.  You had better know how to make these adjustments or you are going to either underprice or overprice the home. 

Rob, Pam, and I also sell homes in areas where most of the criteria listed above is available and pertinent.  Twin Creeks in Allen is a good example.  Although we still have to be careful which homes we use for a CMA, we can usually find enough good comps with most of the criteria listed above.  That allows us to arrive at an accurate listing price and a fairly reliable DOM.

So How Do You Know If Your CMA and The DOM are Accurate?

Look at all the comps the Realtor has used and ask yourself "Are all of these homes representative of my home?.  Do they meet most or all of criteria you see listed above?  If so, you have good information to work with and should be able to price the home correctly and give a fairly reasonable DOM estimate.  But keep in mind ...