Temperature changes all the time. It’s a reality whether we’re talking about a cup of coffee, the weather, or even the real estate market. Today I want to show you one of the ways I use a CMA to take the temperature of a neighborhood real estate market. This helps me communicate well with clients, and I hope it will do the same for you.
NOTE: “CMA” stands for “Comparative Market Analysis”, and it’s a tool real estate agents (and others) use to communicate about the market to clients.
Three steps to gauge the market with a CMA:
1) Draw Neighborhood Boundaries:
All your data is going to come from the boundaries you choose, whether you draw them with a polygon tool in MLS or pick an MLS area (you choose since you are the market expert). I don’t recommend using a radius search because you’ll probably pick up sales from other neighborhoods that could skew the accuracy of what you are trying to present to a client.
2) Run a CMA in your MLS system:
Now run a CMA in MLS so you have access to current listings, pendings, and sales over the past 90 days. The final product may look something like this. I truncated the images below, but you can see the total count of listings and sales in yellow.
Sales over Past 90 Days:
Compare listings, pendings, and sales: As you can see, actives have been on the market for 103 cumulative days, it took pendings 61 days to get into contract, and recent sales took 49 days to sell. In other words, buyers have been pulling the trigger in about 50-60 days, but at the same time a whole host of homes in the neighborhood are not selling.
BIG POINT: If listings have been on the market for longer than sales, something has changed in the market. Maybe it’s the real estate season, or sellers are trying to “test the market” at higher prices. It could also be that inventory has increased, buyers have become more picky, or maybe current listings consist of different types of homes that take longer to sell. This is key to communicate with clients since clearly some properties are selling and others are definitely not.
3) Figure out Monthly Inventory:
You can quickly figure out monthly housing inventory in the neighborhood. There were 61 sales over the past 90 days, which means the market absorbed about 20 sales per month (61 divided by 3 months = 20.33). Note there are currently 47 active listings. If you want to figure out monthly inventory, all you need to do is divide the number of current listings by the number of sales over the past month. In other words, 47 listings divided by 20.33 sales equals 2.31 months of housing supply.
WHAT TO SAY TO CLIENTS: Here is an example of what you might be able to tell clients about this neighborhood:
Right now there are about 2.5 months worth of houses for sale in the neighborhood. This isn’t very many listings, BUT when houses aren’t priced right, they are sitting instead of selling. Most homes are taking 50-60 days to sell, but overpriced homes are literally on the market for over 100 days. These homes will probably sell for even less than they would have had they been priced right from the beginning.
- Don’t make sweeping interpretations because of one CMA.
- Be sure you have enough data since few sales can lead to skewed results.
- Remember that trends for a larger county or even an entire neighborhood may not reflect trends for the property you’re trying to value. This is why it might also be worthwhile to run a CMA for competitively-sized properties instead of the entire neighborhood.
Keynote Speaker on Friday: By the way, I will be the keynote speaker on February 6 at the Masters Club Roundtables event at the Sacramento Association of Realtors. My 30-minute talk begins at 9am and is called “How to tell the story of the market to your clients”. I’ll focus on unpacking what the market did last year, where it is right now, and how to talk with clients about trends. Swing by if you can.
Questions: How do you use a CMA? How else do you gauge the temperature of the market?