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Why a Competitive Market Analysis is Helpful When Buying a Home

Posted by Justin Havre on Monday, November 26th, 2018 at 9:18am.

Competitive Market AnalysisOften, a competitive market analysis is commonly produced by real estate agents for their seller clients to review, as it aids in pricing the home by providing an overview of competing homes & recent sales. However, this tool can also be highly effective when home buyers use it as well.

If you are planning to buy a home, you need as much information as possible about the property and this type of report, completed by your real estate agent, can shed a great deal of light on it. When it comes to home buying, this should be one of the first steps you take when you've found a potential property.

What Is a Competitive Market Analysis?

A competitive market analysis is a report created by your real estate agent. Commonly referred to as a CMA, the report provides information about the property and showcases the home's worth by comparing it to other available properties that are similar to it in the local region. Generally, this report is completed by the listing agent, but buyer's agents can also create one for their buyer clients. This is especially important in situations where you believe the home may not be worth the listing price. The report shares a great deal of information including:

  • What similar homes in the area are actually selling for, not just the asking price
  • How long it takes for homes in the area to sell
  • What the sales prices of those properties were compared to their listing price

The report will look back over a three month period to provide an accurate picture of the current market. If the market is more stable, it can remain accurate over about six months.

Why You Need to See a Competitive Market Analysis

You've found a home you really want to buy. It has everything you need. Is it priced right? To avoid overpaying for the property, talk to your real estate agent about the competitive market analysis report. Take a look at this document (updated as currently as possible).

What homes in the nearby area have sold that are like the one you are considering? How much did those homes sell for? Consider their size, location, lot size, and features. This can give you a good idea of just how accurate the current list price is.

With this information, you can then determine the best price to offer on the home. If the property has been on the market for 120 days and most homes in the area sell in under 90, this can give you an indication that the home may be overpriced. You may want to consider a slightly more competitive bid on the home if it has been sitting a while.

At the same time, you'll want to see how much you can negotiate the price down. If the price isn't accurate, this report can showcase to the homeowner the need to reduce his or her price more in line with your offer.

How a CMA Differs from a Home Appraisal

A competitive market analysis and a home appraisal are both reports that estimate a home's value during a real estate transaction. These reports are used for different purposes and are generated by different people.

A competitive market analysis is created by a real estate agent for the purposes of deciding how much money the seller should ask for when listing the home for sale. A competitive market analysis compares the property to other homes in the area that are of comparable size and in similar condition.  

The appraisal is a report that is created by an appraiser after an inspection of the property. The appraisal is based on the value of comparable homes and also the condition of the home generally. The report from the appraiser is turned over to the mortgage lender to certify that the home is worth the price that the buyer is paying. If the home is not worth the price, the lender may reduce the amount of the loan. 

Knowledge Equals Buying Power

There is a great deal more to consider when home buying, but having information about the property is vitally important for most home buyers. With this information and the help of your real estate agent, you may be able to make a better offer on the home, backed by facts, and close the deal sooner.

If you've found a home that's right for you, now is the time to talk to your agent about the available competitive market analysis. It can shed some light on just about any home and is highly valuable in competitive real estate markets.

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