Don't want to pay too much for a home? Want to be sure that you aren't paying more than market value?

A comparative market analysis or CMA is the best way to insure that you are not overpaying.

What is a CMA?

A CMA is a recap of housing sales in the neighborhood in which you are interested, focusing on three-to-10 properties that are similar in size and amenities. The CMA will list specific details (number of bedrooms, number of baths, total room count, square footage, age, etc.) for similar properties that are currently on the market (active listings); those that are under contract, but not yet closed (pending listings); those that have closed and transferred ownership (sold listings); and those that have either expired without selling or have been withdrawn by the seller (taken off the market). Because a CMA compares similar properties, it can give a buyer a pretty clear snapshot of current housing values in a specific housing market. Although the CMA is important, it cannot be used as an absolute determination of value, since it generally does not put a lot of weight on condition, an obviously important factor.

While the CMA will list homes that are currently on the market as well as those that are pending or have expired, it is those properties that have sold and closed that give the most information. Sold and closed information is important, since these detail specifically what buyers are willing to pay (and lenders are willing to lend) for specific properties. Don't make the mistake of putting too much weight on the prices of properties currently on the market. These homes could be wildly overpriced compared to the price for which they eventually sell. Likewise, one of the biggest reasons that a property listing will expire without selling is because it is overpriced, so the prices of these expired listings should be taken with a grain of salt.

Where can you get a CMA?

If you are being represented by a buyer's agent, he or she will quickly come up with a CMA for you. If you are dealing with an agent who is representing the seller (the home in which you are interested is their listing), that agent cannot develop a CMA for you, since his or her representation of (and loyalty to) the seller may preclude releasing any information that could compromise the seller's position. For example, if a CMA shows that the average property in the neighborhood is selling for $147,000 and the home is listed for $165,000, it is highly unlikely that the seller's agent would give that information to a buyer. This is one of the many reasons that a home buyer should always strongly consider using a buyer's agent, if one is available.

Summing Up

A CMA can be your most important tool in negotiation, since it will determine how much you should be paying for a home. Is it underpriced (a bargain), priced on the money (a fair price for both buyer and seller) or overpriced (time to either negotiate hard or walk away). If you overpay for a home in a strongly appreciating market, the market will eventually cover your mistake. If, however, you overpay in a flat or declining market, you may end up in financial hot water.