Comparative market analysis

Key Takeaways

• A comparative market analysis estimates a property's likely selling range by comparing it to similar nearby properties and adjusting for the differences between them.
• In a comparative market analysis, adjustments are made to the comparable properties, never to the subject property.
• A comparative market analysis draws on sold, pending, active, and expired listings, and each carries different information: sold shows what buyers paid, active shows the current competition, expired shows prices the market refused.
• In Washington, comparative market analysis is a statutory term. RCW 18.140.010 defines it as a broker's price opinion, which keeps it outside the appraiser act.

What It Means

A comparative market analysis, usually shortened to CMA, is a broker's structured estimate of what a property should sell for. The broker gathers Comparables, meaning similar properties nearby that recently sold, are under contract, are currently listed, or failed to sell, and then adjusts each one toward the subject property.

The adjustment step is what separates a CMA from a guess, and its direction is easy to reverse by mistake. Adjustments always run to the comparable, never to the subject. If a comparable has something the subject lacks, such as a second bathroom, its price is adjusted down to make it look like the subject. If a comparable lacks something the subject has, its price is adjusted up. Line the adjusted figures up and a range appears, and that range becomes the recommended asking price.

A CMA is not an Appraisal. An appraisal is a formal valuation by a licensed or certified appraiser, prepared to a professional standard for a lender or a court. A CMA is a licensed broker's opinion, prepared for a seller deciding what to ask or a buyer deciding what to offer, and it borrows the logic of the Sales Comparison Approach without the appraiser's credential.

How It Works in Washington

A comparative market analysis is a broker's product, not an appraiser's, and Washington draws that line in statute rather than by custom. RCW 18.140.010(7) states that comparative market analysis means a brokers price opinion, and RCW 18.140.010(4) defines a brokers price opinion as an oral or written report of property value prepared by a licensee under chapter 18.85 RCW. Those two definitions are what let a Washington broker prepare a CMA without holding an appraiser credential.

Sitting outside the Certified Real Estate Appraiser Act comes with conditions. RCW 18.140.020(2) confirms that a licensee may be compensated for a brokers price opinion. RCW 18.140.020(6) requires that when the opinion is written, or given in a legal proceeding, and issued to someone other than a prospective buyer, seller, lessor, or lessee, it must carry a statement in an obvious place saying it is not an appraisal as defined in chapter 18.140 RCW and was prepared by a real estate licensee. The same subsection bars using it as an appraisal in a federally related transaction, which is why a lender underwriting a mortgage orders an appraisal and not a Broker Price Opinion.

Oregon and Georgia license appraisers under their own statutes and set their own limits on broker price opinions, so a broker working outside Washington should check the rules of the state where the property is located.

Example

Kevin is pricing a 1,780 square foot rambler in Kent with three bedrooms, one bathroom, and no garage. He pulls three comparables from the same subdivision.

• Comparable A sold three weeks ago at $530,000. It is 1,760 square feet with a two car garage the subject does not have, so Kevin adjusts it down $15,000 to $515,000.
• Comparable B sold last month at $498,000. It is 1,690 square feet with no garage but needs a roof the subject does not need, so Kevin adjusts it up $12,000 to $510,000.
• Comparable C is still active at $549,000 after 71 days on market, which tells Kevin what buyers in this subdivision have already walked past.

The adjusted sold figures land between $510,000 and $515,000. Kevin recommends listing at $514,900, notes that the expired listing two streets over sat at $558,000 for four months before the seller withdrew it, and tells the seller plainly that this is his opinion of value and not an appraisal.

Common Mistakes and Exam Traps

• A comparative market analysis is not an appraisal, and a broker preparing one is not acting as an appraiser. This is the single most common swap on the exam.
• Adjustments go to the comparable, not to the subject. A comparable that is better than the subject gets adjusted down; a comparable that is worse gets adjusted up.
• Assessed value is set for property taxation and is not the value a comparative market analysis estimates. Neither is replacement cost.
• Expired and active listings are not evidence of value the way sold comparables are. They show the seller's competition and the market's refusals, which is a different kind of information.