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CMA helps you to find out if the price that a seller is asking for a property is justified. The analysis will also be a little subjective, but with the help of a good local real estate agent this information can be put in the context of the local marketplace and is an invaluable tool in finding out if properties are priced at market value.
So, if you want to find out what a property is worth, then you need to establish a baseline with a CMA for that property.
Rule #1: Don’t be fooled by some vague CMA.
I remember my first calls with sellers and they would say something like, “Yeah, down the road there is a guy who sells his property for the same amount”. That’s not a CMA. You need to see the numbers. Only those count.
Why? Because there are a lot of things to take into account when you analyze the price of a property. It’s a little more straightforward with vacant lots, but as soon as there is a structure on the property (even just a little cabin), things get a little bit more complex. So the more you have to compare your prospective property to, the better.
If the seller cannot provide it (as often happens with FSBO sales), then you need to find a real estate agent, who is listing in the area.
Notes: CMA’s are free. So, be fair to Real Estate agents. Don’t just ask them for CMA’s for different areas, unless you want to work with them. Even though real estate agents are the only people with access to the Hawaii MLS listings, it is still work for them to put the information together for you.
Rule #2: Always ask for a comprehensive CMA.
A CMA is a proper report (usually prepared by a real estate agent) that compares prices of properties in the same area, with similar size and price. If similar properties are not listed at this time, the CMA will list the closest matched properties to the prospective property.
A comprehensive CMA compares a property to 4 kinds of properties:
- Active Listings:
CMA’s are not just a comparison of properties that are offered on the market right now (active listing). Why? Because all the sellers on the market could collectively inflate the prices. It is a scenario akin to: ‘Well, if Joe can ask for that much, then why shouldn’t I?’ That is where it is important to do your diligence work. The price that sellers are asking for is not necessarily the price that you should pay. - Properties sold & closed:
Ask for closed sales in the area from the last 6 months. Sometimes real estate agents will try to give you only the sales from the last month or 2, but especially in times when there are not that many comparable sales, 6 months will be necessary to give you a representative picture. Be stubborn about this, even if the agent moans about it. It is the agent’s job to provide you with this information. - Pending sales:
These are properties that are sold but not closed yet. Those are especially valuable when there were not that many sales in the area. - Expired listings:
Not many people ask for that, but I think that those are particularly interesting. Expired listings are listings for properties that didn’t sell. And guess what? Most of the time it is because those properties were priced too high.
Only reports that contain all these four elements can be considered a comprehensive CMA.
Remember that not many sellers like to disclose all this information, because they know that the price they are asking is too high. So make sure you get a CMA. I’ve seen many properties in Puna over the last few months that have sold for under their asking price.
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