How Many Comparables Should Be Used for a CMA?
Choosing the right number of comparable properties for a comparative market analysis (CMA) is a critical step in determining the accurate value of a property. A CMA is a vital tool for real estate professionals, investors, and homeowners alike, providing an estimate of a property’s market value based on recent sales of similar properties in the area. However, determining how many comparables should be used for a CMA can be a challenging task. This article explores the factors to consider when deciding the appropriate number of comparables for a CMA.
Understanding the Importance of Comparables
Comparables, also known as “comps,” are essential in the CMA process because they help establish the market value of a property by comparing it to similar properties that have recently sold. The goal is to find properties that are as similar as possible to the subject property in terms of location, size, age, condition, and other relevant characteristics. The more accurate the comparables, the more reliable the CMA will be.
Factors to Consider When Determining the Number of Comparables
1. Market Conditions: In a stable market, fewer comparables may be needed, as the value of similar properties may not vary significantly. However, in a volatile or rapidly changing market, more comparables are required to account for potential fluctuations in value.
2. Property Type: Different types of properties may require different numbers of comparables. For example, a unique property like a historic home may need fewer comparables, while a standard residential property may require more.
3. Location: Properties in similar neighborhoods or submarkets may have fewer comparables, as there are fewer comparable properties available. In contrast, properties in larger, more diverse areas may have more comparables to choose from.
4. Age of the Property: Older properties may have fewer recent sales, making it challenging to find accurate comparables. In such cases, it may be necessary to use a larger pool of comparables or adjust the values based on the age of the subject property.
5. Size and Condition: Larger or more luxurious properties may have fewer comparables, while smaller or more modest properties may have more. Similarly, properties in better condition may have fewer comparables, while those in need of repairs may have more.
General Guidelines for the Number of Comparables
While there is no one-size-fits-all answer, here are some general guidelines for the number of comparables to use in a CMA:
– Single-family homes: Use between 3 to 5 comparables.
– Condos and townhouses: Use between 3 to 5 comparables.
– Multi-family properties: Use between 3 to 7 comparables.
– Commercial properties: Use between 3 to 10 comparables.
Conclusion
Determining the appropriate number of comparables for a CMA requires careful consideration of various factors, including market conditions, property type, location, age, size, and condition. By following these guidelines and taking into account the specific characteristics of the subject property, real estate professionals can ensure that their CMAs provide accurate and reliable estimates of a property’s market value.
