CMA, Day 1

Weekly Objective: To learn basics of generating a CMA.

This week’s schedule is as follows:

Monday: Understanding what a CMA is

Tuesday: Educating yourself about the subject property and the area around it

Wednesday: Using the MLS to do a CMA

Thursday: Making Adjustments

Friday: Presentation Tools for CMAs

 


DAY 1

Monday’s Objective: Understanding what a CMA is…

What is a Comparable Market Analysis (CMA)? A CMA compares at least three different types of comparable properties in the same neighborhood, to the subject property. They can be:

  1. Active
  2. Pending
  3. Sold
  4. Cancelled

These are properties that were taken off the market for a variety of reasons. Usually, the reason homes are removed from the market is because the prices were too high. The median prices of this group will almost always be higher than the median prices of comparable sales. However, listings cancel also for the following reasons:

  1. Seller’s remorse. The sellers decided they cannot part with their home and no longer want to sell.
  2. Priced too high. Nobody made an offer or the only offers received were low-ball offers, which were rejected.
  3. The DOM (days on market) were too long. Agents sometimes withdraw listings so they can put them back as a new listing and fool buyers.
  4. Repair requests. The homes were once under contract and after the home inspection, the buyer requested repairs which the seller refused.
  5. Seller fired the agent. It’s not uncommon for unhappy sellers to fire an agent and hire a new agent.

 

The comparable market analysis serves two major purposes during the listing:

  • To establish your knowledge of the market in the prospects’ mind
  • To lay the groundwork for helping the seller set a realistic selling price for the property

You can also use the comparable market analysis when helping a buyer know if home listing is priced too high, low or just right.

 

Market Value – Market Price – Cost

  • Market Value – is an opinion of value based on an analysis of data of comparables
  • Market Price – is what a property sells for
  • Cost – is the construction cost to build

Misconception – Cost represents market value. This is not true. When clients have done of the following:

  • New Construction
  • Remodel
  • Upgrades

They feel like they should get a dollar for dollar return on investment. However, it’s just like buying a new car. The moment you drive it off the lot, depreciation hits the value.

That’s why insurance companies sell “gap insurance”. It’s to replace that lost value should you get into an accident as you leave the car lot.

 

Other Factors to Consider:

  • It’s also important to remember that sometimes sellers are barely bringing their property up to market condition through a recent remodel or upgrades.
  • It’s recommended that a Homeowner put 1% of the home’s value back into the home each year that they live in it.  This not only makes it more enjoyable to live in, but it keeps the property inline with the condition required for the current market value.
  • There are 2 things that sell houses, price and condition. It’s important to take into consideration the condition of a house vs it’s price. Price and condition work together when determining what the market will pay for it.

 

Action Items:

  1. Pick a residential single-family subject property – start with your own house
  2. It will be hard but go ahead and attempt a CMA on the subject property that you chose

 

Resources: