Comparative Market Analysis
What is 'Comparative Market Analysis'
A comparative market analysis is an examination of the prices at which similar properties in the same area recently sold. Real estate agents perform a comparative market analysis for their clients to help them determine a price to list when selling a home or a price to offer when buying a home. Since no two properties are identical, agents make adjustments for the differences between the sold properties and the one that is about to be purchased or listed to determine a fair offer or sale price. Essentially, a comparative market analysis is a less-sophisticated version of a formal, professional appraisal.
BREAKING DOWN 'Comparative Market Analysis'
A comparable market analysis can also include currently listed properties, especially if no similar properties were recently sold. However, listing prices only indicate what the seller hopes to get for the property and do not necessarily reflect what it is actually worth.
While the comparative market analysis is not an official appraisal, the real estate agent uses a great deal of similar practices and methods that an appraiser would use to arrive at a reasonable value for the property. If the home or property is so distinctive and/or unique where there are no comparable properties found, it may be in the best interest of the owner to hire a formal appraiser to value the property.
An Example of a Comparative Market Analysis
For example, a couple might be considering writing an offer on a four-bedroom, three-bathroom, 2,100-square-foot, single-family home on a quarter acre of land. The house is listed for sale at $300,000. The couple’s real estate agent performs a comparative market analysis and locates three similar properties that recently sold in the same subdivision. The first is identical in every way to the subject property except that it is located on a busy road; it recently sold for $275,000. The second has four bedrooms, three bathrooms, and is located on a quarter acre of land but is 2,400 square feet because it also includes a screened-in porch; it sold for $315,000. The third has four bedrooms, is located on a quarter acre of land and is 2,100 square feet, but it only has two bathrooms, both of which are outdated; it sold for $265,000. Based on the differences in the properties examined in the comparative market analysis, the real estate agent determines that $300,000 is a fair listing price. Her clients decide to offer $290,000 in the hope of negotiating with the sellers to purchase the property at $295,000.