Real Estate Comparative Market Analysis 

Real estate investing is a complex industry with many factors in local and national markets that affect your return on your investment. One of your top concerns as a real estate investor is pricing—if you price your property too low, you don’t get as much return; if you price it too high, you won’t have much interest in the property. How do you know what the right price is?  

Using a comparative market analysis tool can help you determine the perfect rent or selling price for your investment properties. While real estate agents or brokers can assist you with this, it’s important for you to also conduct research on the property and surrounding market using similar properties called “comparables.” 

In this article, we’ll break down the main components of a comparative market analysis using comps, as well as its two main use cases in residential real estate. If you’re ready to start your own comparative market analysis (CMA), you can download a copy of our real estate CMA spreadsheet above. 

What is a Comparative Market Analysis? 

A comparative market analysis (CMA) is a method used by a real estate professional to determine the fair market value (or rent price) of a property. CMAs estimate this value by comparing a target property to similar properties that have recently been sold in the area or are currently listed for sale on the market. These similar properties are called “comparables” or “comps,” and most analyses include at least three. 

CMAs consider a variety of factors related to the target property and its comps to estimate a reasonable price range. These factors often include property size, location, age, condition, features, renovations, and others. They are often conducted by a real estate agent, who collects data about and analyzes the comparable properties. 

Unlike a formal appraisal, which is conducted by a licensed appraiser, a CMA is a less formal analysis and doesn’t typically involve calculating the exact value of individual components of the property. However, CMAs are nonetheless a critical tool for understanding current market trends, in part because of their accessibility. 

Conducting your own comparative market analysis, or CMA, requires research and time, but the payoff is well worth it. You’ll need to know or estimate detailed market information, like the price per square foot of your property and its comps and the desirability or appreciation potential of the neighborhood. While pricing can be difficult for even seasoned real estate investors, it’s especially tricky for those without experience in the business. That’s why conducting an analysis following a comparative market analysis template is invaluable. 

When is a Comparative Market Analysis Used? 

CMAs are primarily used for two purposes: 1) To determine the approximate market value of a home that is being listed for sale, and 2) To determine an appropriate rent price for a property being rented out to tenants. Let’s look briefly at both use cases. 

Using a CMA to Determine Market Value

Determining the listing price for a property for sale is perhaps the most common use case of CMAs. An experienced real estate agent typically performs CMAs to help sellers set a competitive listing price or assist buyers in making informed offers. Investors also use CMAs to collect data for their market pricing decisions. 

A good CMA in each of these scenarios should include at least three recently sold homes as comps, located as close to the target property as possible. Ideally, these comps should have sold within the last three to six months. For each comp, the agent or investor will then carefully document and/or itemize the differences between them and assign a corresponding value to individual features (e.g., an additional bedroom corresponds to an $X increase in listing price in this market). They may also calculate the price per square foot or per unit if the properties are different sizes. 

If the analysis focuses or emphasizes active listings and current market competition, rather than just recent sales, it may be referred to as a competitive market analysis. 

Using a CMA to Determine Rent Price

Setting rent price is a crucial skill for any landlord. There are many factors that drive rent prices up or down—some of these factors are “hidden” or are due to factors that are not immediately obvious, like a large company in the neighborhood suddenly requiring employees to return to the office and driving up demand, or a microeconomic downturn from an event like a factory closure which would lower the interest in that area.  

Using comps is an invaluable tool in these situations. By analyzing comparative rental properties that have signed leases within the last 30 days, you can see how competitive or accurate your rent price is.  

When choosing comps for your rental property, be sure to compare properties that not only have a similar number of bedrooms and bathrooms as yours, but also that have comparable amenities. Your analysis won’t be as accurate if your property doesn’t offer the same luxury amenities like pools, laundry services, parking, or gyms.  

It’s also a good idea to choose comps that have similar policies and applicable fees, when possible. Does your property boast any included utilities? If your subject property includes water and gas, try to find comps that do the same.  Are renters asked to pay extra for things like pets or parking? Your comps should reflect similar benefits or charges to create the most accurate CMA. This may require some extensive research on listing sites. 

When choosing a rent price based off comps, a good practice may be putting yourself in the shoes of a potential renter— when faced with two similar apartments, one with amenities and one without, renters will likely expect lower rent prices from the apartment without those luxury add-ons. 

Conclusion 

Avoiding bad investments is a vital skill in the real estate investing space. While it’s inevitable that you will endure bad decisions occasionally, conducting your own research and being prepared in this process will help you negate many of those risks.  

Using a free real estate comparative market analysis tool can help you practice skills that are transferrable to many different investing strategies. For example, you may need these exact same comparative skills when pricing a flipped property or selling a condo. 

You can start your own comparative market analysis free of charge by downloading a copy of Innago’s CMA spreadsheet above.