No homebuyer wants to overspend on their new home. But if you’re interested in a particular property, how do you know if the listing price is fair? Typically, your best resource is an Accredited Buyer’s Representative who can give you a competitive market analysis (CMA).

Home prices are constantly changing, but a CMA provides a valuable snapshot of current conditions for a particular property.

Sellers use CMAs to help them decide on a listing price. However, if a seller is overly optimistic and aims too high with their price, buyers can benefit from doing their own analysis.

CMAs versus automated valuation tools

Many buyers assume it’s okay to rely on the price estimates that appear on property sites like realtor.com and Zillow. 

While these algorithms are a convenient starting point, they don’t consider all the factors people contemplate when evaluating a home and a neighborhood in person. 

Further, your buyer’s rep sees homes constantly and can share professional insights on how a house compares to other properties in the area. For instance, they’ll know whether the home you’re considering is likely to be a solid long-term investment.

How do real estate agents create a comparative market analysis?

CMA reports are not standardized, although real estate professionals follow similar guidelines when preparing one for clients. For example, an agent’s analysis typically includes the following:

Step 1. Select comparable properties.

First, your buyer’s agent must identify recently sold properties similar to the home you’re interested in buying. Ideally, these comparable homes (or “comps”) are similarly sized, located within one mile, and share the same school district.

Agents only include completed real estate sales because they reflect a valid market price—the amount a buyer and seller agreed upon. In contrast, listing prices only indicate a seller’s desired price.

Using the most recent sales is essential because real estate prices can change quickly. 

Agents aim to include at least three comparable sales in their analysis, although their research will be more thorough and reliable if they’re able to add additional properties. 

Of course, it can be challenging to identify comps for some properties. For example, recently sold homes in rural markets can be much further than a mile apart. Also, homes with unique features like waterfront or golf course properties may have fewer recent comparable sales. 

Step 2. Adjust for differences.

Properties are rarely identical, so it’s essential to make adjustments to the comps that have been selected.   

For example, say the property you’re considering is a 1,800-square-foot two-story home with three bedrooms, two baths, and a finished basement. One of the recently-sold comps is virtually identical, except its basement isn't finished. Naturally, you wouldn’t expect to pay the same price for these two properties, and you must modify the price accordingly.

Other standard adjustments account for differences in square footage, age, property upgrades, location, and other factors.

After evaluating each comparable property, your agent can determine an appropriate price (and range) for the property you’d like to buy. This analysis can help you be confident that you’re making a fair and competitive offer without paying too much.

Going a step further.

Sometimes a property currently under contract would make an excellent comp, even though the sale hasn’t closed yet. In this case, your agent can ask the listing agent about the contract price and the number of offers submitted, so you’ll have an inside scoop on the most current pricing trends.

It can also be helpful to learn more about the terms and conditions of the properties included in your comps. For example, an unusually low selling price may have occurred because the seller prioritized a quick cash sale.

In addition to CMAs, which analyze prices for a handful of properties, real estate professionals also look at other data to evaluate broader trends and determine if their local housing market is favoring buyers or sellers currently.

Helping you evaluate property prices is just one of the many ways buyer’s agents can improve your home buying experience.