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Understanding CMAs


Don't want to pay too much for a home? Want to be sure that you aren't paying more than market value for your home purchase?
A CMA--Comparative (or Comparable) Market Analysis--is the strongest tool in your home buying arsenal to give assurance that you are not overpaying. With a rapidly changing Real Estate market in many areas, it becomes crucial that a buyer has access to a current CMA before they make an offer to purchase a home!

A CMA is a recap of housing activity in the area in which you are interested, focusing on 3-10 properties that are similar in size and amenities located in the same neighborhood or nearby. The CMA will list specific details (number of bedrooms, number of baths,
total room count, square footage, age, etc.) for similar properties that are currently on the market (active listings), those that are under
contract but not yet closed (pending listings), have closed and transferred ownership (sold listings) as well as those listings that have either expired without selling or have been withdrawn by the seller (taken off the market). Because a CMA compares similar properties it can give a buyer a pretty clear snapshot of current housing values in a specific housing market. Although the CMA is very important, it cannot be used as an absolute determination of value, since it generally does not put a lot of weight on condition, an obviously important factor.

While the CMA will list homes that are currently on the market as well as those that are pending or have expired, it is those properties that have sold and closed that give the most information. Sold and closed information is important, since these detail specifically what buyers are willing to pay (and lenders are willing to lend) for specific properties. Don't make the mistake of putting too much weight on the prices of properties currently on the market. These homes could be wildly overpriced compared to the price for which they eventually sell for. Likewise, one of the biggest reasons that a property listing will expire without selling is because it is overpriced, so the prices of these expired listings should be taken with a grain of salt.

What does a CMA include?

You will find at least the following information on the "subject property" (the one you want to buy) and anywhere from 3 to 10 additional properties:

+ Street address
+ Square footage
+ Number of bedrooms, number of baths, number of total rooms
+ Age
+ Listing price and sold price if closed

You can see an
example of a CMA here.

Where can you get a CMA? If you are being represented by a Buyer's Agent, they should be able to develop a CMA for you in a short amount of time. Since virtually all Multiple Listing organizations are computerized, the Buyer's Agent can pull a CMA up on their home or office computer and have it available to you. If you are dealing with an Agent who is representing the seller (the home in which you are interested is their listing) it may be that the Agent cannot develop a CMA for you, since their representation of (and loyalty to) the seller may preclude releasing any information that could compromise the seller's position. For example, if a CMA showed that the average property in the neighborhood was selling for $147,000 and the home was listed for $165,000, it is highly unlikely that the seller's Agent would give that information to a buyer. This is one of the many reasons that a home buyer should always strongly consider using a Buyer's Agent, if one is available. See the discussion on
Buyer's Agency

Summing Up

A CMA can be your most important tool in negotiation, since it will detail exactly where, price-wise, the house in which you are interested is positioned. Is it underpriced (a bargain), priced "on the money" (a fair price for both buyer and seller) or overpriced (time to either negotiate hard or walk away). As we have mentioned many times in the past, if you overpay for a home in a strongly appreciating market, the market will eventually cover your mistake. If, however, you overpay in a flat or declining market, you will end up holding the financial bag.

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