When you’re in the market for a new home or looking to sell your current one, figuring out how much to offer or ask can be a considerable challenge. How much a house is worth can seem fairly subjective, considering how many factors go into determining it. However, pricing property is a science. That’s why real estate agents conduct a comparative market analysis (CMA).
What Is A Comparative Market Analysis (CMA) In Real Estate?
A comparative market analysis is a tool that real estate agents use to estimate the value of a specific property by evaluating similar ones that have recently sold in the same area. It can be extremely challenging to reliably estimate the fair market value of a home because there are a significant number of factors that go into determining how much a specific property is worth.
When people who are buying a house or selling theirs think of factors that impact the listing price, they typically consider location, square footage and the number of bedrooms and bathrooms. But the property’s age, condition, features, lot size and so on, as well as the conditions of the local and national housing markets, affect the value of residential real estate as well.
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How Is A Comparative Market Analysis Prepared?
In order to conduct the analysis, real estate agents search for recently sold homes in the same area that are as similar to the subject property as possible.
These homes, which are known as comps, or comparable sales, are used to conduct a sales comparison approach to pricing. This approach relies on the premise that you can figure out how much a home is worth by identifying how much it would cost to purchase a similar property of equal desirability.
The Rule Of Three
The first step for an agent preparing a CMA is to find three homes that have sold recently (within the past 6 months at most, but preferably 3 months). These three homes should be as similar and located as closely together as possible.
Once at least three comps are selected, each one is thoroughly examined to pinpoint how it differs from the home in question. After the differences are itemized and priced out, the sales price of each comp is adjusted to determine how much it would cost if it were nearly identical to the subject property and sold in the current market.
What’s The Difference Between A Comparative Market Analysis And An Appraisal?
Although a comparative market analysis uses similar housing market indicators to compare and identify regional home values, it’s not considered an official home appraisal. Whereas home appraisals are conducted by appraisers to create home valuations, CMAs are completed by licensed real estate professionals to estimate the fair market value.
Even though the resulting value is an approximation that also incorporates the goals of the seller or buyer of the property, a CMA is a complex process that requires technical knowledge of the overall market and how various aspects of real estate impact how much a property is worth.
Taking Market Conditions Into Account
Market conditions are a wild card with comparative market analysis and price setting in general. That’s why it’s best to use homes that have sold as close in time to the home currently being priced. A strong buyer’s or seller’s market might upend CMA values.
For example, a rapidly gentrifying neighborhood might not have strong comparable properties because housing prices can change dramatically within just a few months. If you’re looking for a home in a rapidly appreciating neighborhood, just remember that even though buyers and sellers may come to an agreement on price, in order to get financing, a home appraisal will be needed to determine if that price is justified.
What Goes Into A Comparative Market Analysis?
Although completing a comparative market analysis is a complex process, it’s broken down into separate, manageable parts. These parts collectively give sellers and buyers a thorough value estimate.
Analysis begins with agents compiling a list of at least three similar properties within the same area that have sold in the last 3 – 6 months. If there isn’t enough sales data or if the potential purchasing price of a home is being calculated, agents may also select properties that are currently listed on the market or pending. Even expired listings can be used to demonstrate the kinds of prices that are too high to attract interested buyers.
Here’s a list of the various components that go into a CMA:
Location: The best comps will be located in the same neighborhood as the subject property. However, if there haven’t been enough recent sales in the area to complete the CMA, the agent will select comps located in an area that is considered similar due to the quality of local schools, crime rate, noise level, proximity to amenities and so on.
Lot size: The size of a property’s lot plays a large role in its market value. Differences in even half an acre can have a substantial impact on a home’s price.
Square footage: The larger the house, the more valuable it tends to be. Therefore, the extent of livable square footage can be just as important as the number of rooms within the home.
Age and condition of property: The year the house was built and whether it’s been recently renovated factors into the value. Newer constructions and homes built with high-end materials are often considered more valuable, though historical homes that have been recently updated can also have high purchasing prices.
Number of bedrooms and bathrooms: The more bedrooms and bathrooms a home has, the higher its value will be.
Special features: Specialty features, like fireplaces, patios, swimming pools, garages, finished basements and so on are also taken into consideration. However, it’s important to keep in mind that depending on the local market, not all special features will actually be viewed as increasing the home’s value.
Date of sale: The comps chosen should have sold within the last 3 – 6 months. If sale dates are not current, sales prices must be adjusted to reflect how the market has changed. Market conditions may vacillate either locally or nationally based on the size of inventory and changing interest rates.
Terms of financing and sale: The type of financing a buyer uses to purchase a home can impact the purchasing price, as can the terms of sale. Buyer contingencies might be accepted, but only if the offer price is higher. If a comp’s sale included seller concessions, the value of the concessions must be subtracted from its purchasing price. Such concessions may consist of the seller’s decision to pay the buyer’s closing costs or make repairs on the home prior to sale.
Thinking about buying a home? Who better to turn to for advice than actual homeowners. Bank of America asked more than 1,200 homeowners what advice they would share with aspiring homebuyers, and here are the five tips that rose to the top:
Start saving for your home early
Consider maintenance costs and unexpected expenses
Create and stick to a budget
Buy a home sooner to start building equity
Buy a home you can grow into, that fits future needs and goals
Sounds good. Even obvious, right? But of course some of this stuff is easier said than done. What do these tips look like in practice, in real life? To flesh them out, we asked members of our own team. There are plenty of new and long-time homeowners around Framework. What are their experiences in these areas? What have they done right? What mistakes have they made?
Take whatever ideas, motivation, and inspiration you can from these tips, successes, and cautionary tales.
1. Start saving for your home early
Saving for a down payment is hard these days. So, most of us need to start sooner rather than later. Yet with tight job prospects and student loan debt so often part of the equation, how do you do that? Laura lived with her parents.
The parent option isn’t always both possible and palatable. But for Laura, a content specialist at Framework, it was. And it helped her buy her own home, by herself, when she was still in her twenties.
About a third of all millennials still live with their parents, a number that’s ballooned in the last decade, according to the US Census Bureau. That’s about 24 million people between the ages of 18 and 34. Laura says that, for her, lack of job opportunities was part of it, but so was her goal of buying a home.
“When I returned to my hometown a few years after college,” she says, “I started living with my parents because I was making next to zero dollars working part-time jobs. But once I decided to become a homeowner, I continued living with my parents to save money. I paid them a modest rent and started saving everything else.”
After saving for three years — and finding full-time employment — Laura had enough for a 10% down payment on a two-bedroom townhome near St. Paul, MN. “That made my monthly payment more affordable, and I even had a few dollars left for new paint!”
2. Consider maintenance costs and surprise expenses
The surprise element is of course the hardest. As contradictory as it sounds, all homeowners need to plan for the unexpected. Or better yet, says Kelly, proactively dig for potential problems before they become surprises.
Consider Kelly’s %&@#! dryer vent.
“I thought it just needed to be cleaned out, but it had to be replaced, so we went from $80 to $500. Really, for that little thing,” says Kelly, a partnership associate at Framework. She recently bought a 1930s condo in the Greater Boston area.
“I think knowing ahead of time really does make a difference,” she says. “I knew going in that the furnace would need to be replaced, so I’m not so upset about that. Because I didn’t expect the dryer vent to be so much money, even though it’s thousands less than what the furnace will be, I was kind of like, What?!”
Now that she realizes how much the previous owner neglected basic maintenance, she wishes she pressed for more information from him during the sale, “maybe a checklist that would show the last time all these items were maintained or repaired.” That way, she could have prepared better both financially and mentally.
One way she’s been coping: Angie’s List* coupons. “Angie’s List somehow knows exactly what I need,” she says. “I’ve bought coupons for the dryer vent cleaning, HVAC and furnace maintenance, gutter cleaning, and waxing the floors.” Her Angie’s list experience has been so positive, she’s become a paying member.
3. Create and stick to a budget
Easier said than done, right? That was Prabin’s experience, until he and his wife had a baby and decided to buy a house outside Boston. The game-changer for them was Mint, the online financial management tool.
“I had always looked at my numbers in separate places,” says Prabin, Framework’s VP of operations and information systems. “I never had true visibility of all the expenses.”
“With Mint*, I have all the information pulled into a central location, and I can see all the cash coming in and all the cash going out,” he says. “The system is smart enough to divide up the categories. So, if I want to limit eating out to $200, the system will tell me if I’ve reached that.”
As part of thinking about how much house they could afford, Prabin used spreadsheets to look at the impact of different-size mortgages on their budget. “It gave me a solid understanding of how much cash would be left on a monthly basis. It was important to me not to sacrifice too much. I can cut down eating out, but not to zero.”
His one mistake, he says, was not accounting for larger utility bills, including the water and sewer bills they didn’t have as renters. It helps to ask the owner of the home you’re buying for their average costs. Be sure to find out how many people have been living in the house too, and do your best to adjust the figures up or down.
4. Buy a home sooner to start building equity
Buying a home can be a stretch at any age, but especially when you’re young. For Maria, a first-generation immigrant, stretching early on paid off a dozen years later with $100,000 in equity and a piece of the American Dream.
Twenty years ago, Maria and her husband had been out of college for only a year when they heard about a local revitalization program that was building affordable new single-family homes. They jumped on it. Equity wasn’t really part of their thinking at that point, says Maria, who’s now VP of product platforms at Framework. “For me, the big thing was I would be able to garden and paint the walls any color I wanted.”
They had to commit to living in the home for five years, but five years turned into twelve as they realized how much equity they were starting to build, Maria says. A rising market in their Rhode Island city helped, but they also did a lot of work on the house: over the years, they turned the little Cape’s original dirt lot into a real yard and added two bedrooms and another bathroom.
“Looking back, it was very stressful because I did not think we had enough money,” she says. “It felt like a sacrifice, but it was a manageable sacrifice. And because we were willing to take the leap and make those sacrifices early, it gave us a lot of freedom later.”
Meaning that they eventually used that equity to buy land and build something closer to their dream house in a less urban location. “All because of equity, when we had children, I could give them their own bedrooms,” Maria says. “We have deer and turkey and other wildlife in the backyard. I feel like I don’t need to move again. I feel like this is my home home.”
5. Buy a home you can grow into, that fits future needs and goals
This often means “plan for kids.” Family-minded Leah and her husband had their hearts set on a three-bedroom single-family house. And that required extra “scenario planning.”
“We had one kid but knew we wanted a second,” says Leah, who works at one of Framework’s nonprofit owner organizations. “So we wanted at least three bedrooms. And a backyard for them to play in.”
A community they could grow into was important too, she says. The Boston-area city they bought in has good public schools and plenty of parks and kid-centered activities.
But could they afford it in the long term? “Our childcare payment for an infant was almost as much as our mortgage,” Leah says. “How would we pay our mortgage with two kids in day care?”
“We did scenario planning, basically,” she says. “I have friends in hot markets who have gone through the same thing. So I went out and asked people, How do you afford your house and have two kids?”
The solution: save in advance for that double-daycare period, building it right into the budget. They calculated the maximum mortgage payment they could handle while meeting their savings goal. “If we hadn’t planned that,” Leah says, “I think we would have had a hard time making everything fit together.”
Selling a home is very different from buying a home. Buying a home generally involves emotions and feelings, but selling a one typically centers on what listing agents like to call “maximizing profit potential.” The tips here apply to first-time home sellers, or any seller needing a real estate refresher.
Price Your Home Accurately
Note
You don’t want to create the wrong impression by pricing your house high and then reducing it. Nor do you want to leave money on the table.
A reputable listing agent can help you here. Don’t choose your cousin’s sister-in-law who only dabbles in real estate. You’ll fare much better if you select an experienced real estate agent who sells a fair number of listings, preferably in your neighborhood.
Your agent will analyze comparable sales and prepare an estimate of value—often called a CMA—for comparative market analysis. It is OK to compare this to the Zestimate on Zillow, but note the variances your agent will point out because your listing agent should have the experience and education to provide you with a more accurate opinion of value.1
Home-Staging Boosts Selling Power and Appeal
Ask your agent to advise you on preparing your home for sale. Most homes show better with about half of the furniture removed. If a buyer walks in the door and wonders whether anybody lives in the house, you’ve done your job correctly. Consider home-staging to boost your selling power and appeal.2
Note
Painting is the single most effective improvement you can make. Don’t let dings in the woodwork or scrapes on the walls make your home reflect deferred maintenance.
The Best Day to List Your Home
Choose the best day to list your home. This time period will vary, depending on your local community, the weather, time of year, and a host of other factors, including the state of your present real estate market. You basically get one chance to present your home in its best light on its first day on the market.
Ask About Your Agent’s Standard Real Estate Commission
If the agent’s standard real estate commission seems reasonable, consider the big picture and benefits to you to hire this individual. Check track records for performance. Don’t expect a full-service agent to discount. Getting into a contract is only the beginning; you need to make it all the way to closing.
Your home will not sell itself, despite what you may read or hear or the propensity of real estate websites to make the process appear as easy as the click of a mouse. It’s not. You don’t know what you don’t know. To get the most money from the sale of your home, you will most likely rely on the professionals you have hired to sell your home. Do not try to pit agents against each other to compete for commission, or you’ll increase the chances you’ll end up with a weasel. You don’t deserve a weasel.
Be Flexible With Home Showings
Be flexible with showings. If home showings are too much of an imposition on your life, consider going away the first weekend your home is on the market. It can feel a bit intrusive to allow strangers to trek through your home and check out your soft-closing drawers in the kitchen.
Note
The best way to sell your home is to let a buyer inside with their buyer’s agent to tour in peace and quiet. Buyer’s agents prefer to show without interference. Leave the house when buyer’s agents show up. Anything you say can and will be used against you.
Host an Open House
Allow an open house if your home is conducive to one. Not every home is a viable candidate for an open house. If your home is located in an area close to major traffic, that is generally indicative of a reasonable expectation the open house signs will pull in visitors. Ask your agent whether they advertise the open house online. Many a home buyer has had no desire to buy a home until they spot an open house and subsequently fall in love.3
Insist on Professional Photography
Of course, if you have hired a top-notch listing agent, your agent most likely already provides professional photos. It’s not enough to just get the angle right in the photo.
Note
The most popular photos are rich in color and depth, and they entice. Ask to approve the virtual tour or photo tour before it’s published.
Review Your Listing Online
Look at your home listing on various websites to make sure the information conveyed is accurate. Agents do their best to ensure accuracy, but since it is your home, you know the details better than anyone. If you spot a feature that is missing, contact your agent immediately, and ask for an inclusion.
Respond Promptly to a Purchase Offer
Try to respond promptly to a purchase offer. Many purchase offers contain a date by which the offer expires. It can drive buyers crazy if they are forced to wait for a seller to decide whether to accept their offer or to issue a counteroffer.
Line Up Movers Early
Line up your movers early. If you are thinking about moving at the end of May, for example, which is the busiest time of the year for movers, you might find it is impossible to locate movers for the day you want. You can start packing before your home hits the market, which will give you a head start on the process. It will also give you peace of mind to be prepared. Selling can be stressful enough.
A realtor is a real estate professional who is a member of the National Association of Realtors (NAR), a professional association. The NAR defines the term realtor as a federally registered collective membership mark that identifies a real estate professional who is a member of the association and subscribes to its code of ethics.1
KEY TAKEAWAYS
A realtor is a real estate professional who is a member of the National Association of Realtors (NAR), a professional association.
Professionals who may hold the title of realtor include agents who work as residential and commercial real estate brokers, salespeople, and property managers.
Realtors are expected to be experts in their field.
They must follow the NAR’s code of ethics, which requires agents to uphold a certain standard of duty when working with clients.
Compliance with the code of ethics became a requisite for membership in 1924.2
The term realtor is a registered trademark.1 As of October 2021, there were 1,564,547 realtors. That broke down as 68% real estate agents, 20% real estate brokers, and 13% associate brokers.3 Realtors must belong to both a local association or board and a state association.4
Realtors are expected to be experts in their field and must follow the NAR’s code of ethics, which requires agents to uphold a specific standard of duty to clients and customers, the public, and other realtors.
Among its many requirements, the code of ethics says that realtors “shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.”
The code also states that realtors “shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”
Furthermore, realtors must “pledge themselves to protect and promote the interests of their client” while treating all parties to the transaction honestly.5
1,564,547
The number of realtors as of October 2021.3
Guidelines for Using the Realtor Trademark
The NAR maintains stringent rules on the use of the realtor trademark. Professionals who hold membership as a realtor or realtor-associate on a member board are licensed to use realtor trademarks in connection with their name and the name of their real estate business.
The realtor trademark is prohibited from being used as part of the legal corporate name of members of the association.6 According to the NAR, this is done to avoid the legal issues involved with a corporate name change if a member were suspended or expelled from the association and lost the right to use the trademark.7
Furthermore, the NAR’s guidelines state that if a qualified member uses the realtor trademark as part of their name, it must appear in all capital letters and be set off from the member’s name by punctuation.
The NAR does not use the realtor trademark with descriptive terms or as a description of the vocation the way terms such as real estate broker, agent, and licensee are used. The association also says that realtor trademarks are not to be used as a designation of the licensed status of a professional.86
When Was the National Association of Realtors Started?
The NAR was founded as the National Association of Real Estate Exchanges in 1908. At the time, it had 120 members, 19 boards and a single state association.
What Is the Realtor Code of Ethics?
The Code of Ethics & Professional Standards is a set of rules focused on fair and honest behavior that members pledge to abide by. They concern the manner in which clients must be treated and conflicts should be handled. The Code of Ethics holds members to a high moral standard.
How Are Real Estate Agents Different From Realtors?
Real estate agents are individuals who are licensed by their state to help people buy and sell real estate. Realtors are real estate agents who have opted to become members of the National Association of Realtors. NAR members have access to a wealth of training, tools, and data to help them provide their clients with a completely professional experience.
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