If you're a prospective home buyer or seller in Canada, it's crucial to know what the Comparative Market Analysis (CMA) is and how it can help you get the best price for your home. As the name suggests, a CMA determines the current price of a home by comparing it with recently sold houses in the same area. In particular, real estate agents compare the size, neighbourhood, and age of recently sold houses when performing a CMA.
Initially, it is essential to understand everything about the subject property. By doing so, you can make informed decisions about the differences between comparable properties. The more information you gather, the more reference points you have to compare with other properties.
It also helps to gather property tax information. Although tax information will not provide a home's accurate, fair market value, it will help set a reference point.
You can roughly estimate the current price of a house through some basic math. You will need to know three things:
With this information, you can multiply the old value of the house with the percentage increase in the neighbourhood for that period. We constantly update our Major Cities Housing Market Report to ensure you have recent data. For example, imagine you bought a house four years ago for $500,000, and the average house price in your neighbourhood has gone up 10% since then. By multiplying $500,000 with (1+10%) you can roughly estimate your house to be worth $550,000 (= 500,000 * 1.10) today. However, this is a rough estimate and should be refined with a CMA.
Additionally, it is essential to know if the house was ever listed and not sold. If this ever happened, it is likely the asking price was too high.
It is important to make sure you are comparing similar types of properties. For example, an apartment unit should not be compared with a standalone house. This is because pricing the differences is very difficult. Best practices when searching for comparable properties include filtering by:
Note that these are just a starting point for filters and not an exhaustive list. The goal here is to narrow it down to at least five comparable properties that were recently sold. If there isn't enough data, an agent can extend the search criteria by increasing the factors mentioned in the "Will a CMA Correctly Value my House" section.
Use the same filter as above to find comps currently for sale. Make sure to look at how long they have been on the market. Days on Market (DOM) is a great way to determine the interest in a property. If a similar property has been on sale for 60 days yet other houses are selling faster, it's likely too expensive. It's best if you keep this in mind when adjusting the price of your home.
Armed with research and reference points, an agent will be able to make an educated estimate of a property's value. An excellent way to start is to use our Free Home Value Estimator. With this foundation, an agent can add or subtract your valuation based on how your housing features compare to similar properties.
To determine the valuation for a property, you must know what similar houses have recently sold in the area. A real estate agent can find a list of comparable properties - known as comps - on the MLS platform.
With this information, a real estate agent determines how the market values specific features of a house. It is essential to know the differences in characteristics between your house and recently sold homes to add or subtract value to your home. Standard features that agents compare include:
Through understanding the differences in features, an agent will adjust the value of your house based on how you compare.
For example, imagine a house with two bedrooms recently sold for $500,000. If your home has all the same features and one extra bedroom, you can be sure your house will sell for more. However, imagine a similar three-bedroom property with a new kitchen recently sold for $575,000. If your kitchen is outdated, your house will sell for less. Through the process of comparing your home with multiple recently sold houses, an agent can determine a price range estimate for your house.
It is essential to note the comparable properties are in the same area and have sold recently. This is because different neighbourhoods command different prices, and real estate trends change over time. Ideally, you are comparing houses that have sold no longer than six months ago.
In real life, it is more difficult because there are many features to compare and the potential for lack of comparable properties. Additionally, there is the challenge of pricing the differences between features. How much value does a new roof add? Will my old water heater remove value from my pool? In these situations, it is crucial to have an experienced real estate agent help you to determine the best value for your property.
Performing a comparative market analysis is most accurate in areas with lots of sales data. Ideally, an agent will provide you with at least five comparable properties to best determine the price of a house.
However, suppose there is not enough relevant sales data. In that case, an agent will have to extend the qualifying criteria of a comparable property. Typically, an agent will widen the comparable property search by:
An experienced real estate agent can help you find the best comparable properties. They know how to balance accuracy and quantity.
The easiest way to increase the value of your house is to maintain the current structure of your home and renovate parts of it.
The main difference is that an appraisal is a formal process that a licenced appraiser must do. A CMA is more subjective and doesn't need to be officially done by an agent.
Appraisals are expensive and not necessary to sell a house. However, they can be a great tool if there are not many similar comparables in your area.
Make sure to find a good real estate agent to write your CMA report because they have extensive training to determine your home's fair market value. A CMA report is thorough; it will save you time and make sure all comparables are relevant to your house's location/age/size etc. When you are buying a home, you should also understand the home insurance options in Canada.