One of the most difficult decisions for a home seller is to determine the Listing Price, or more commonly called the “asking price.” To help with this answer the seller’s agent typically will do market research to construct a Competitive Market Analysis, commonly shortened to CMA.
The agent will research “comparable” properties to the seller’s home. The region encompassed by the CMA may be an area no more than a few blocks surrounding the seller’s home, or as large as the seller’s whole subdivision. The purpose is to gather data on homes that most closely resemble the seller’s home, as well as homes that are indicative of the seller’s neighboring areas.
Included in the CMA will be data on properties that;
- Have sold and closed within the last 6 to 12 months
- Are now active listings, meaning properties that currently are for sale
- Are pending sales, meaning listings that are under contract but have not yet closed
- Expired listings, which are properties that did not sell during the listing period and the property has been removed from the active market.
Comparable metrics should include homes that are most similar to the seller’s home in terms of square footage, age, amenities, upgrades, condition, location, views and lot size.
Although a CMA is not an appraisal, its approach is similar from an appraiser’s perspective. Appraisals are important in that they influence financing by the lender. If a home appraises below the price in the contract, then the buyer will need to bring more cash (equity) to the closing. This could be an issue for the buyer. And if the buyer can’t complete the closing, then this is an issue for the seller.
The seller’s agent should combine data that is in the CMA with other data about supply and demand for the seller’s type of home or approximate listing price point, the direction of the current market, the current absorption rate and any specific information related to similar or competitive homes in the seller’s area that presently are on the market.
The seller should look at all of this data not only from his viewpoint, but equally important from the buyer’s viewpoint. Buyers set the market, not sellers. The seller should be able to set a more realistic listing price, so as to complete his sale in a timely manner, if he considers the CMA from the buyer’s perspective.