Buying a home is surely a joyous and proud feeling. Regardless of whether you are buying your first home or the nth home, it becomes your personal asset and improves your equity.
However, it is a lot easier than done- the process of buying a home.
Homebuyers need to explore their options, decide their budget, make sure that everything in the property is okay. And most importantly, they need to get the best deal within their budget, no matter what.
Indeed, they use comparative market analysis to help them make the right offer on a property.
What Is Comparative Market Analysis?
Simply put, comparative market analysis, a.k.a. CMA, is a tool that helps put an estimated value on real property.
Typically, the real estate agents would analyze the recently sold properties in an area. They would try to find what are the mean and median buying prices within the subject area.
They would then analyze the average and median price for the currently active listings in the area.
Although it is extremely challenging to estimate a fair price for any property, the CMA helps.
With the help of the CMA, real estate agents can then make an offer on the property and slide into negotiations. And it needs no mention that it is the first step, indeed, towards making a real estate sale or purchase.
How To Prepare CMA?
A good CMA should have enough information and that too in the right format. It should be supportive in making offer decisions. Meaning, it should contain just the right information with necessary details.
There are a few steps to prepare an easy-to-understand CMA.
- Determine The Area
First things first, to prepare a CMA it is important to confine the research to a particular market. For instance, if you are buying a house in Florida, you would want to limit your research to the state only.
You can further refine the data by skewing the area to a city or a county. This should help get a better picture of the similar houses that have been sold in that area in the past.
- Choose Property Type
Now, an area be it a state, city, or county, may have several types of properties listed. Apart from the difference between commercial and residential properties, there are distinctions within.
For example, a single county may have hundreds of single-family homes, condos, apartments, townhouses, and more. And all these property types are not comparable. So, it is necessary to define the type of property and limit it to the properties that are sold at a similar value as the subject.
- Select The Timeline
The next step is to set the timeline across which the research is to be focused. It is noteworthy here that property prices tend to appreciate over time. And what real estate property would have sold for a year ago is not comparable to what it may sell for today.
Ideally, studying the market for sales in recent months is a good way to get a good comparison. And not to mention, the fluctuations in the market would also be fewer.
- Know Comparables
Just as there could be several types of properties within a selected area, there can be different sizes of them too. For instance, it is possible that within a miles radius, two houses with similar lot sizes may have a different number of bedrooms. And this could change the equation significantly.
So the last step is to include comparables into a CMA. Typically, properties are compared on the basis of their lot size, built-up area, house features, etc.
How Does CMA Help In Buying Decision?
As already mentioned CMA helps real estate agents make a fair buying offer to the seller. However, it is not the only information that CMA provides to real estate agents.
There is a lot more that can be extracted from CMA.
There is a reason why it is called a market analysis- the report helps assess what could be the property value in the future, say 10 years down the line.
Of course, appreciation prospects are an important factor for home buyers. Well, you wouldn’t want to buy a home that may not grow your investment in the years to come.
Please note the word- worth, does not mean the monetary value of the property. It refers to the worthiness of buying property regardless of its price.
For more clarity, consider this example. A property that has been on the market for over a month is more likely to have something wrong with it. In contrast, a property that has been on the market for just a few days is more likely to sell quickly.
Now, this is critical information that only expert eyes can identify. By looking closely at the sale conditions of similar properties in the past, it can be estimated how easy or difficult it is to get a mortgage on the property.
Since most home buyers tend to take out a home loan it is important that they also assess the financing terms that are easy to get in the area of their choice. And accordingly, they can arrange for the earnest money and downpayment.
Lastly, a CMA also offers a market overview to the real estate agents and buyers. Not only it helps determine the right offer to make but also helps understand which market is better and which one is the best.
The buyers can accordingly make up their minds if they need to buy a home in the subject location or would want to explore more.
Comparative market analysis is a tool that real estate agents and buyers can use to make their purchase decisions. It not only helps determine the best offer to make but also helps learn about the market.
It needs not contain too much information but it surely does need to have the right information. Particularly, the pieces that are needed to make the desired decision.