The “Comparative Market Analysis” and Why it is Essential for Homebuyers and Sellers

Our company motto is: “Solid Analysis Identifies Great Opportunities.”  One of the critical tools in the analysis of residential real estate is called the “Comparative Market Analysis” or “CMA.”  The information summarized in a CMA is essential to any buyer in determining whether a purchase makes sense.  It is also a crucial tool for sellers in determining market value of a home for resale.

In order to create a CMA, you need to have access to a database of recent home sales that are comparable to the one you are researching—comparable in terms of location… sq.ft. of heating living area (“HLA”)… number of bedrooms and baths… etc.  Most realtors have access to this database in the form of the Multiple Listing System or MLS.  It is possible to use the MLS to filter search results using a myriad of criteria, such as the specific things mentioned above, and many more.  Of course, the closer you come to finding an identical or nearly identical home to the one you are researching, and the closer in time the sale was, the more reliable an indicator that “comp” is of the value of the home you are researching.

Properties vary widely—even within the same subdivision.  There are different models, different upgrades, different lot sizes, locations within a subdivision, homes with garages near homes without garages, etc.  The difficulty of finding reliable “comps” for homes that are located in more rural areas or are not located in subdivisions of similar homes is greater for obvious reasons.  But, regardless of the difficulties encountered in creating a reliable CMA, the CMA is a critical tool in any analysis of a property—whether buying or selling. 

A CMA takes the data from the MLS, filters the “comps” based on the criteria used, and thereby suggests a market value.  Of course, the time frame used in preparing the CMA is also very important.  A CMA using data from a year ago is a less reliable indicator of current market value than a CMA that uses data from the last 180 days.

An example of a CMA prepared for the Madison Park subdivision near Uptown Charlotte appears below.  Madison Park is an area of older homes that have been experiencing much renovation in the last several years because of the subdivision’s proximity to Charlotte’s city center.  It is still possible to find an “old, original” home built in the early 1960’s that has not been significantly update in 40 or 50 years, buy it at a reasonable price, renovate the home and thereby build equity into the home.  The CMA summarizing sales in the last 180 days of homes with at least three bedrooms/two baths and between 1,400 and 1,700 sq.ft. of HLA follows:

  

You can see from the above CMA that comparable homes in this Madison Park community closed in the last 180 days at prices ranging from a low of $305,000 to a high of $440,000.  The average sale price in that 180 day period was $360,806 (average sq.ft. of HLA was 1,561, giving us an average per sq.ft. price of $231.06).  Based on this information, if we were to find a home in Madison Park that needed about $40,000 in updating, and we could get that home for $305,000 or so, all other things being equal, would this be a decent deal?  The somewhat oversimplified answer is “yes.”  $305,000 + $40,000 would take us to an “all in” price of $340,000.  The average closed sale was almost $361,000.  And since our house will have been newly updated, our end value would probably be closer to the high end of the sales, rather than the average.  Do you now understand how powerful this information can be?

To give us a more complete picture, we would want to review the MLS reports for all the homes appearing in this CMA.  A link to those reports follows below:

Click the following link to view the Residential:
https://matrix.carolinamls.com/DE.asp?ID=6547313349

“Solid analysis identifies great opportunities.”  This is more than just our company motto, it is a demonstrably true statement.  But analysis is only as good as the data used in the analysis and the person doing the analysis.  Real estate “bought well” can create great wealth.  Real estate bought or sold poorly can be devastating to wealth.  Mistakes are therefore to be studiously avoided.  If you are thinking of buying or selling residential real estate in the greater Charlotte area, feel free to contact us.  We would be very happy to help.