# FSOB: Home Valuation -- Pricing a House to Sell for Maximum Value in Minimum Time (2)

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## The Comparative Market Analysis

A comparative market analysis, or CMA, is the method used by almost all real estate agents to estimate the worth of a house. The CMA method of estimating value is based on the premise of substitution. It maintains that a buyer would not pay any more for real property than the cost of purchasing an equally desirable substitute in its respective market. It’s similar to shopping for milk at the local grocery store. If Grocer A charges \$2.00 for a gallon of milk and Grocer B charges \$3.00 for the same gallon, most shoppers will choose Grocer A. This is true even if the shopper has to drive a few extra minutes to get there. At some point, however, it no longer makes sense to drive additional miles, and shoppers may relent to paying more.

The CMA method also assumes that all comparable sales used in the comparison process are legitimate arm’s length transactions to help ensure accuracy of the data used in the report. A comparative market analysis furthermore provides that the comparable sales used have occurred under normal market conditions. For example, this assumption would exclude properties sold under duress, such as those of a couple going through a divorce or someone who had lost his or her job and was about to lose the home to the bank. A CMA examines several properties within a given area that have sold within the last six months or so and adjusts their value based upon similarities and differences among them. Adjustments are made for differences in amenities (such as two bath rooms versus three bathrooms), square footage, and lot size.

I strongly recommend having a comparative market analysis done on the home you are selling. Without a CMA, you will have a difficult time properly estimating the value of your house. Although you may have heard from your next-door neighbor that the neighbor down the street got a certain price for her house and, therefore, your house must be worth at least as much as hers, this is not a proper basis for value. In legal terms, this would be considered hearsay and therefore cannot be relied upon. To properly determine the value of a house, empirical data is needed—that is to say, hard evidence such as that found in the multiple listing service, or MLS, used by real estate agents. You need factual information that is known to be true in order to determine the value of your house.