CMA (“Comparative Market Analysis”) Math
I just showed an Edina home to clients who expressed serious interest, and want to know when they can double back to see it again.
Their inevitable next question for me: “what do you think it’s worth?”
While every house is by definition unique, the key to estimating a home’s fair market value (what Realtors call doing a Comparative Market Analysis, or “CMA”) usually comes down to a two-step process:
One. Identifying the key adjustments — positive and negative — between what’s called “the subject home” and the “Comp’s” (“Comparable Sold Properties”); and
Two. Assigning dollar values to those differences.
Real-Life Example
So, in the case of the Edina home, relative to the “Comp’s,” there were three attributes that stacked up as negatives, and one that was a positive:
Negatives:
a. Long walk from rear of home to detached garage (vs. attached garage);
b. Only one upstairs Bath (no Master Bath);
c. Location on busy street;
Positives:
d. Four Bedrooms up (vs. 3 for the Comp’s);
Crunching the Numbers
How do all those variables compute?
Here’s what I came up with:
a. minus $10k – $25k
b. minus $15k – $25k
c. minus $10k – $25k
d. plus $15k – $30k.
Total net adjustment (using the mid-ranges): call it, minus $30k – $35k.
Accounting for Deal Breakers
Of course, there’s at least some Realtor (or Appraiser) subjectivity in those numbers.
It’s also the case that the size of the adjustments is Buyer-specific.
So, a family with young kids may rule out a busy street altogether, in which case the correct, negative adjustment is theoretically . . . infinite.
At the other extreme, a professional couple buying a home with only one upstairs bath may not care very much.
But, they’ll still want to negotiate an appropriate discount for that, if only because their eventual Buyer likely will care.
P.S.: The best way to account for an adjustment?
Cancel it out altogether.
For example, if both the Comp and the subject home have a bowling alley in the basement . . . you can safely ignore it.
See also, “How Appraisers Account For a Bowling Alley in the Basement (Ideally).”
