The comparative market analysis, or CMA, is an essential instrument in a broker’s toolbox. Whether you are working with sellers to list a property, or helping a buyer make an offer on a property, knowing how to create an effective CMA is paramount.
I had the pleasure of being schooled by one of the most ferociously awesome principal brokers of all time. New brokers in her office were not allowed to go willy-nilly about town. No way!
First, we were required to take her classes on contracts, land use, clauses and CMAs. And they weren’t the kind of classes that we "experienced" brokers use to pad our education hours (you know exactly what I mean).
Contracts were read aloud, line by line, and dissected. Maybe we weren’t lawyers, but we would know precisely what our contracts asserted and inferred. We would not hesitate when we wrote up that first earnest money agreement (although I did sweat profusely).
The CMA class, however, will remain my favorite. Everyone thinks they know (instinctively?) how to construct a comparative market analysis. It’s so easy, right? Common sense.
I rarely see principal brokers these days caring one wit how their agents complete this "menial" task. But it’s SO important! It is the foundation of our listing prices and sales presentations! And, if done right, it is a work of art.
So, here is an annotated five-point guide to a worthy CMA.
1. The most important rule and most often violated: For-sale properties should never, ever, ever be used in a CMA for pricing a new listing. Use only like properties that have CLOSED in the past 90 days or less. Don’t use word-of-mouth FSBOs or rumored builder-direct sales numbers, but only like properties that have SOLD, CLOSED and been RECORDED. Period.
2. A CMA should not be a lasso of the entire city, town or province. It should specifically center around your key property, much like a target: neighborhood, area, section. Start as close to your key property as possible, aiming to complete the CMA with homes sold in the smallest area practicable to achieve a good sample. If the home is so unique that it does not have comparable neighbors, establish a list of the property’s distinct characteristics (selling points) and use that as your "neighborhood."
3. Be an ageist! If your target property is an all-original 1960 California ranch-style home surrounded by new construction, HELLO! You can’t use all those new homes as side-by-side comparisons. Oh, it makes me cringe when I see this! Now, see No. 4.
4. Use your BRAIN. A comparative market analysis should not simply be an automated computer program provided by your local MLS. Instead, an artful CMA is a download of your personal real estate brain. When you look at your compiled list of comparatives, you should know these houses, having at least (AT THE VERY LEAST) done drive-bys, if not actually toured them when they were for sale.
5. Lastly, if your clients still have trouble with the number that you’ve proposed (whether it be for a listing or an offer), put them in the car. Nothing trumps personal experience. (Hey, NOW you can use for-sale properties if you must.) Show them what your CMA means in the real world by driving them to comparative properties both in your sweet spot and in their suggested range.
"Who has time for all of this baloney? Sounds like too much work to me!"
Maybe. But then again, it’s the initial work you put in that greases the rest of the sales process. How many times do you want to arm wrestle your listing client on price? Wouldn’t you rather get the house priced right from the get-go, sell it and have everyone happy? And praising you for your genius-ness?
Start every transaction the right way: with a solid CMA that not only proves your value as an agent but is brag-worthy.