Comparative or Competitive Market Analysis (CMA)

Definition

A Comparative Market Analysis (CMA), also known as a Competitive Market Analysis, is a method used by real estate professionals to estimate the value of a property. This estimation is based on the analysis of sales of comparable properties in the same area. The purpose of a CMA is to determine a property’s market value by evaluating factors such as size, location, conditions of sale, property condition, and price per square foot. It is important to note that a CMA is not a formal appraisal and does not conform to the Uniform Standards of Professional Appraisal Practice (USPAP).

Examples

Residential Property:
- A real estate agent might conduct a CMA for a homeowner looking to sell a three-bedroom house. They would compare the home to similar properties in the same neighborhood that have recently sold. These comparables might include homes with similar square footage, number of bedrooms, and lot size.
Commercial Property:
- For a commercial property, such as a small shopping center, a CMA would compare it to recently sold commercial spaces of similar size and utility in the same or nearby areas. Factors such as parking availability, location, and tenant mix might be considered.
Vacant Land:
- A landowner wanting to sell an undeveloped parcel might use CMA to gauge the land’s value by comparing it to similar vacant lands that were recently sold, taking into account aspects such as size, zoning, and potential for development.

Frequently Asked Questions

What is the purpose of a Comparative Market Analysis?

The primary purpose of a CMA is to provide a fair market value estimate for a property, which helps property sellers set a competitive asking price and assists buyers in making informed offers.

How accurate is a Comparative Market Analysis?

The accuracy of a CMA can vary based on the quality and relevance of the comparable properties selected. It provides a market-driven estimate but lacks the comprehensive evaluation that a formal appraisal offers.

Who can perform a CMA?

Real estate agents and brokers typically conduct CMAs as part of their services to clients. However, it’s essential to understand that a CMA is not conducted by a licensed appraiser.

Is a CMA legally binding?

No, a CMA is not legally binding. It is an estimate provided for informational purposes and is not a substitute for a formal appraisal.

Can a CMA replace an appraisal?

No, a CMA does not meet the standards of an official appraisal and should not be used in situations requiring formal valuation, such as obtaining a mortgage or for tax purposes.

Appraisal: A professional assessment of a property’s value conducted by a licensed appraiser following standardized methods and guidelines.
Fair Market Value: The estimated price a property would sell for on the open market between a willing buyer and seller.
MLS (Multiple Listing Service): A database used by real estate professionals to list and view properties for sale, often utilized in conducting CMAs.
Real Estate Agent: A licensed professional who assists buyers and sellers in real estate transactions, often conducting CMAs as part of their services.
Uniform Standards of Professional Appraisal Practice (USPAP): Guidelines that provide standardized practices for professional appraisals.

Online Resources

Suggested Books for Further Studies

“The Comparative Market Analysis Handbook” by Karen Brinson.
“Real Estate Market Analysis: Methods and Applications” by John Ratcliffe.
“The ABCs of CMA” by George Mills.
“Real Estate Appraisal: From Value to Worth” by Keith Black, Adrienne Cassity.
“Real Estate Appraisal Processes and Fundamentals” by Jay Matchett.

Fundamentals of Comparative or Competitive Market Analysis (CMA): Real Estate Basics Quiz

### What is a Comparative Market Analysis (CMA)? - [x] An estimate of property value based on comparable property sales - [ ] A legally binding property valuation - [ ] An official property appraisal - [ ] A financial analysis of realtor commissions > **Explanation:** A CMA estimates property value by comparing it to similar, recently sold properties in the same area and is not a legally binding or official appraisal. ### Who typically conducts a Comparative Market Analysis? - [x] Real estate agents and brokers - [ ] Licensed appraisers - [ ] Mortgage lenders - [ ] Property inspectors > **Explanation:** Real estate agents and brokers typically conduct CMAs to assist clients in setting property prices or making offers. ### What main factors are considered in a CMA? - [ ] Loan-to-value ratio and credit score - [ ] Property age and historical significance - [x] Size, location, property condition, and price per square foot - [ ] Local tax rates and mortgage rates > **Explanation:** CMAs focus on tangible property characteristics like size, location, condition, and price per square foot. ### Is a CMA a substitute for a formal appraisal? - [ ] Yes, it provides similar details - [ ] Sometimes it can be used in place of an appraisal - [x] No, it does not meet appraisal standards - [ ] Only in residential property transactions > **Explanation:** A CMA is not a formal appraisal and does not adhere to professional appraisal standards like USPAP. ### Why might a homeowner request a CMA? - [ ] To get a tax assessment value - [x] To determine a competitive selling price - [ ] To secure a rental agreement - [ ] To refinance their mortgage > **Explanation:** Homeowners request a CMA to determine a fair and competitive selling price for their property. ### How does a CMA differ from an appraisal? - [ ] A CMA is cheaper than an appraisal - [ ] A CMA is more detailed than an appraisal - [ ] An appraisal requires multiple property visits - [x] A CMA guides market value using comparables, while an appraisal provides a structured value assessment > **Explanation:** A CMA offers a market-driven estimate using comparables; an appraisal provides a thorough, structured property valuation conducted by a licensed appraiser. ### What is one limitation of a CMA? - [x] It may lack accuracy and is not legally binding - [ ] It requires formal licensing to conduct - [ ] It includes regulatory compliance - [ ] It considers future market trends > **Explanation:** A CMA may lack the detailed accuracy of an appraisal and is not legally binding. ### Which term refers to the estimated price a property could sell for on the open market? - [ ] Comparative sale price - [x] Fair market value - [ ] Assessed value - [ ] Listing price > **Explanation:** Fair market value is the estimated price at which a property would sell on the open market between a willing buyer and seller. ### What database commonly used by realtors aids in conducting CMAs? - [ ] Federal Reserve data - [ ] Realtor financial statements - [x] MLS (Multiple Listing Service) - [ ] County municipal records > **Explanation:** The MLS is a database frequently used by realtors to list and view properties, aiding in conducting CMAs. ### Which guideline helps standardize professional appraisals? - [ ] National Real Estate Valuation Code (NREVC) - [ ] Standardized Realtor Practices (SRP) - [x] Uniform Standards of Professional Appraisal Practice (USPAP) - [ ] Government Appraisal Standards (GAS) > **Explanation:** USPAP helps standardize the methodologies and practices of professional appraisals.

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