What is a CMA?

What is a CMA? (comparative market analysis)

The Principle of Substitution and the CMA

	The value of anything is determined by getting the most features for the least amount of money.
	For example, you are looking at two identical automobiles, and one is priced $100 higher. Which would you buy?

$2,000

$2,100

Another example in home buying: you are deciding between two identical homes in a tract development – one is located at the tract entrance by the highway, the other is up the hill away from the road with a view. The one by the road is priced $20,000 less. Why? - because the developer knows that buyers will always substitute the better location if the price is the same.

How does the Principal of Substitution affect your home sale?

Consider these trade offs, given that everything else with two homes is the same:

	View – no view
	Busy street – quiet street
	Just painted – needs paint
	Groomed yard – overgrown yard
	New systems – old systems
	Hardwood floors – pink wall to wall carpeting
	New roof – moss on roof
	Cul-de-sac – next door to Costco

The list goes on and on. The point is, people ALWAYS substitute for the better, even if it comes down to one small thing such as a better washing machine in one home over another.

Every single positive raises price, every negative lowers price. In the end, your home is priced by the buyer based on the Principle of Substitution. In other words, "What can the buyer get for their money?" Buyers look at many homes before they decide on one, and they quickly become very good judges of value. If you are over-priced, they know it. If you are under-priced, expect a bidding war.

A good CMA factors in as many variables as possible. Here are the main ones:

LOCATION – location is the single most important factor in valuation. In Seattle $350,000 gets you a smaller house in a less desirable area. In Centralia it gets you a brand new 4 bedroom home.

Other important factors:

	Size
	Lot size
	# of bedrooms
	# of bathrooms
	Parking type
	Style of home
	Age of home
	Condition of home
	Type of energy sources
	Type of plumbing and sewer
	Quality of construction and materials
	Included items such as appliances
	Designer elements
	View

These elements are then compared to other homes currently for sale, and to homes which have recently sold in the same area. Location plays a key factor even in a matter of a few blocks of distance. Seattle real estate inflation is high, so prices must be adjusted for each month of time that has passed since the sale of a comparable house.

Based on this research, a list of “comps” (comparable homes) is compiled and charted. In housing there is rarely a perfect comp, so a range is presented, and value is determined by the principle of substitution.

I would like more information about a CMA for my home - Click Here

Contact Information Contact us with your real estate questions - selling, buying, financing, contracts, listings, tax records, and of course, comparative market analysis.

Jim Hunt

Coldwell Banker Danforth and Associates

206-972-1425