A big part of my job as a real estate professional is to provide guidance to my clients as to how much to list a home for and how much to offer on a home to purchase. A tool we use for this is the comparative tax analysis or CMA. There are various ways to formulate a CMA and they can be very simple or very complex. The overall theory of the CMA is to look at recently closed transactions of properties that are comparable and similar to the subject property in the neighborhood.
Sometimes there can be issues with creating a CMA. For example, there may be an insufficient amount similar properties in the neighborhood, other times the transactions for those similar properties occurred a little to long ago to represent the current real estate market. In these situations, the CMA developer needs to get creative in order to provide a good selection of comparables to perform the analysis. Regardless of this, we also need to have a good process to ensure all factors are being considered. It can really turn into an artform when coming up with a “Method to the Madness.”
For different types of property types there are different challenges. For example, condominiums and townhouses are typically easier to find comparables because there is less variation in unit types within a condo complex. However, for smaller complexes with not many units or transactional volume, there may be issues in finding recent transactions to use.
On the other hand, with single family homes, you may have a lot of recent transactions in a given neighborhood, but there may be great variation in the homes in terms of internal and external square footage, amenities, improvements, finishings, lot types, etc.
Another challenge we have with the comparative market analysis is the fact that they are flawed by design. The reason I say that is because they are based on historical transactions. This is fine in a market that is stable, neither going up nor down too drastically. But right now, we’re in a hyper competitive, super Seller’s market. Transactions that closed yesterday represent contracts that were agreed upon 30, 40 maybe even 60 days ago and as such are Old News and obsolete. When inventory levels are like they are today (a little over one month of inventory for single family homes), the prior comparable sale may not be a good indication of the price of the next transaction. This week I ran a CMA on a home in Ewa Beach of West Oahu. A very similar home closed a month ago for $960,000. The CMA calculated a $950,000-$970,000 range. The home ended up getting over 8 offers and is in contract for over a $1 million.
Sometimes it’s almost a disservice to provide buyers a CMA because in the current market conditions, relying solely on the analysis will not put you in the running. I suggest to my buyers that they need to look at what they are willing to pay for the home and not use the CMA as a guide but more of a point of reference.
If you want a comparative market analysis performed on your home, contact me and I will get one done for you.
Thanks for reading this blog, and in the words of the American Author, A.D. Aliwat, “The only thing anyone can really know for sure is that you can’t really know anything for sure. If you’re lucky, you can get half the truth.” I’ll see you next week!
