A comparative market analysis (or CMA) is a report generated by a realtor looking to determine a fair market value for a home. While non-residential properties may also receive CMAs, it is overwhelmingly prospective homeowners and current home-sellers who request these analyses. A comparative market analysis is not the same thing as an appraisal, and that's for several reasons.

While an appraisal is undertaken by a licensed professional who's passed rigorous courses and is a disinterested party, CMAs are done by agents with a vested interest in the outcome. Because agents take their pay on commission, it's in their best interest to arrive at the highest valuation possible. As you might imagine, this can significantly affect the numbers involved.

How a Comparative Market Analysis Works

When an agent conducts a comparative market analysis, he or she uses other real estate in the area as a basis for valuation. These other properties are referred to as "comparables," or "comps" for short, and provide key facts and figures on things such as square footage, living space, and furnishings. In fact, there is a ladder of criteria that agents use in making CMAs, with the most important variables (number of bedrooms and bathrooms; quality of the neighborhood) at the top and less important ones (new fixtures, window treatments) at the bottom.

When a prospective buyer applies for a mortgage, he or she needs a valuation on the home in order to calculate monthly payments, property taxes and such. Usually, it is the lender who requests an analysis, as this is the most sensible way for him or her to protect an investment. A low valuation might dissuade a lender from extending a credit line to an applicant, though the reverse (a high valuation) may also be the case.