How To Do A Cma

Ever wondered how businesses make critical financial decisions? The answer often lies in the hands of Certified Management Accountants (CMAs). These professionals aren't just bean counters; they're strategic partners who drive business performance by analyzing financial data, making informed recommendations, and ensuring financial integrity. In today's competitive landscape, companies need more than just record-keeping; they need insightful financial leadership, making the CMA certification a highly sought-after credential that can significantly boost your career prospects.

Becoming a CMA opens doors to roles in financial planning, analysis, control, decision support, and professional ethics. The rigorous certification process equips you with the skills and knowledge to excel in these areas. It's a challenging journey, but the rewards – both professional and financial – are substantial. For those seeking a career where they can directly impact a company's success, understanding how to navigate the CMA path is essential. This guide will break down the process, demystify the requirements, and offer valuable tips to help you achieve your CMA goals.

What does it take to become a CMA?

What are the steps involved in preparing a CMA (Comparative Market Analysis)?

Preparing a Comparative Market Analysis (CMA) involves a systematic process of gathering and analyzing data on comparable properties to estimate the market value of a subject property. This typically includes defining the subject property, searching for comparable properties, adjusting prices based on differences, and reconciling the data to arrive at a likely sales price range.

The first critical step is to thoroughly define the subject property's characteristics. This includes its location, size (square footage and lot size), number of bedrooms and bathrooms, age, condition, and any unique features or upgrades. This detailed profile provides a benchmark against which comparable properties will be measured. Next, a comprehensive search is conducted to identify recently sold properties that are similar to the subject property. The ideal comparables are located within the same neighborhood or a similar market area, sold within the past 3-6 months, and share similar features (size, age, style, condition). The more comparable properties identified, the more accurate the analysis will be. Once comparable properties are identified, the next crucial step involves making adjustments to account for differences between the comparables and the subject property. These adjustments are typically based on market data and the appraiser's or agent's expertise. For example, if a comparable property has an updated kitchen while the subject property does not, an upward adjustment is made to the subject property's estimated value to reflect this difference. Common adjustments include square footage, lot size, number of bedrooms/bathrooms, garage/parking, view, and upgrades. Finally, after all adjustments are made, the adjusted sales prices of the comparables are reconciled to arrive at a reasonable estimate of the subject property's market value. This reconciliation process involves weighing the strengths and weaknesses of each comparable and considering any market trends or external factors that might influence value. The end result is typically a price range rather than a single point estimate, reflecting the inherent uncertainties in the real estate market.

How do I choose the right comparable properties (comps) for a CMA?

Selecting the right comparable properties, or "comps," for a Comparative Market Analysis (CMA) is crucial for an accurate valuation. Focus on properties that are as similar as possible to the subject property in terms of location, size, age, condition, features, and, most importantly, have recently sold (ideally within the last 3-6 months) in the same market.

When narrowing down potential comps, prioritize location first. Look for properties within the same neighborhood or a very similar nearby area, avoiding crossing major boundaries like highways or school districts if possible. Next, consider physical characteristics. Square footage should be within a reasonable range (generally +/- 10-20%), and the number of bedrooms and bathrooms should be as close as possible. Age and condition also significantly impact value, so seek out properties built around the same time and in similar condition. Look for renovations or upgrades that align with the subject property. Remember that the “sold” date is paramount. Markets fluctuate, so the more recent the sale, the more relevant the comp. Also, verify data accuracy from your MLS or trusted source. Double-check details like square footage and lot size to ensure you're comparing apples to apples. Finally, be prepared to make adjustments to the prices of the comps to account for any differences between them and the subject property. This might include adjustments for a finished basement, a larger lot, or updated features.

What adjustments should I make to the comps used in a CMA?

When using comparable properties (comps) in a Comparative Market Analysis (CMA), adjustments should be made to account for differences between the comps and the subject property. These adjustments aim to simulate what the comp would have sold for *if* it were identical to the subject property. Adjustments are typically made for quantifiable differences in features, condition, location, and other relevant factors impacting value, adding value to the comp if it's inferior to the subject and subtracting value if it's superior.

Adjusting comps is a critical skill in creating an accurate CMA. Remember that you're adjusting the comp to match the subject property, not the other way around. Common adjustment categories include:

The dollar value assigned to each adjustment should be based on market data. This can be derived from analyzing paired sales (sales of similar properties where only one feature differs), cost estimates for improvements (for example, the cost to add a bathroom), or local market knowledge. It's important to justify your adjustments with reliable data and avoid making arbitrary or unsubstantiated changes. Aim for minimal adjustments overall; the best comps require the fewest changes. An appraiser often prefers to use the raw sale price of a comparable property with explanations about the differences, so you should provide a similar level of detail about your adjustments.

Where can I find reliable data sources for creating a CMA?

Reliable data for a Comparative Market Analysis (CMA) primarily comes from the Multiple Listing Service (MLS), county records, and sometimes, depending on availability and accuracy, reputable online real estate portals.

The MLS is the gold standard for CMA data. It provides the most accurate and detailed information on recently sold properties, including features, square footage, lot size, sales price, days on market, and other relevant details. Access to the MLS is typically restricted to licensed real estate agents. County records, accessible through the county assessor's or recorder's office (often online), offer information on property ownership, tax assessments, and legal descriptions, providing verification and supplemental details. It's also a good source to double-check information found in the MLS and confirm details such as square footage or lot size which might be recorded inaccurately elsewhere.

While online real estate portals like Zillow, Realtor.com, and Trulia can offer supplementary information, they should be used with caution. Their data accuracy can vary significantly, and they might include estimates or information not verified by a real estate professional. They can be helpful for identifying potential comparable properties but must be verified using MLS and county records. Always prioritize MLS data, followed by county records, when constructing your CMA. The more accurate your data, the more reliable your CMA will be.

How do I interpret the results of a CMA to determine a property's value?

Interpreting a Comparative Market Analysis (CMA) to determine a property's value involves analyzing comparable properties ('comps') and adjusting for differences between them and the subject property. You'll identify a range of values suggested by the comps, refine that range by considering the strengths and weaknesses of your property relative to the others, and ultimately arrive at a reasonable estimated market value.

The most crucial step is carefully examining the comparable properties selected. Pay close attention to their similarities and differences compared to the subject property. Key factors to consider include location (proximity and neighborhood quality), size (square footage, lot size), age and condition, number of bedrooms and bathrooms, features (pool, garage, updated kitchen), and recent sale date. Adjustments are then made to the sale prices of the comps to account for any significant differences. For example, if a comparable property sold for $350,000 but has an extra bathroom, you might deduct a certain amount (based on market value for bathrooms in your area) from its sale price before comparing it to the subject property. Conversely, if the subject property has a feature the comp lacks, you would add value. Once adjustments are made, you'll have a range of adjusted sale prices for the comparable properties. Look for a cluster of values, indicating the most likely price range for the subject property. Don't simply average the adjusted prices, as outliers (comps that are significantly higher or lower than the rest) can skew the results. Instead, focus on the median and the cluster of prices around it. Consider the overall market conditions, as a rising market may justify a higher price, while a declining market may necessitate a more conservative estimate. Finally, use your judgment and local market knowledge to determine a realistic and supportable estimated market value. Remember a CMA is not an appraisal, but rather a tool to help you understand the market and guide your pricing strategy.

What are the ethical considerations when preparing a CMA?

Ethical considerations in preparing a Comparative Market Analysis (CMA) center on honesty, accuracy, objectivity, and confidentiality. Real estate professionals must provide unbiased opinions based on factual data, avoid misrepresentation or exaggeration, protect client information, and act in their client's best interests while adhering to fair housing laws and professional standards.

Preparing a CMA demands upholding the highest ethical standards to maintain trust and ensure fair transactions. Accuracy is paramount; relying on outdated or incomplete data, selectively choosing comparables to inflate or deflate value, or omitting crucial property information constitutes unethical behavior. It's essential to diligently verify information from reliable sources and clearly disclose the data's limitations. Objectivity requires refraining from letting personal biases, relationships, or outside pressures influence the analysis. A CMA should reflect the true market value based on comparable sales, not a desired outcome. Confidentiality is also a crucial ethical responsibility. Client information, including their financial situation or motivation to buy or sell, must be protected and never disclosed without explicit consent. Similarly, information obtained about comparable properties should be treated with respect and used only for the purpose of the CMA. Furthermore, real estate professionals must adhere to fair housing laws, ensuring that the CMA and any resulting advice do not discriminate against any protected class. Failing to do so is not only unethical but also illegal. By prioritizing honesty, accuracy, and fairness, real estate professionals can build strong client relationships and contribute to a trustworthy real estate market.

How often should I update a CMA to reflect current market conditions?

A CMA should be updated at least every month, but ideally more frequently – even weekly – in a rapidly changing market. The goal is to ensure your pricing recommendation accurately reflects the current dynamics and provides the seller with realistic expectations.

Updating your CMA regularly is crucial because real estate markets are dynamic. New listings, sales, and pending sales constantly influence property values. In a hot market with rapidly increasing prices, a CMA that's a month old might significantly undervalue a property. Conversely, in a cooling market, an outdated CMA could lead to overpricing, resulting in the property sitting on the market for an extended period. Keeping the CMA current helps avoid both scenarios. The frequency of updates should directly correlate with the market's volatility. If you are experiencing multiple offers, properties selling well above asking price, and low inventory, weekly updates (or even more frequent spot-checks) are essential. In a more stable market, a monthly update might suffice. Pay close attention to key indicators such as days on market, sale-to-list price ratio, and inventory levels to gauge the market's pace. Reviewing recent sales within the last two weeks will also help identify any significant shifts that could impact the accuracy of your CMA.

And there you have it! Hopefully, you're now feeling much more confident about tackling your next CMA. Thanks so much for reading, and good luck! Come back and visit again soon for more tips and tricks to make your financial life a little bit easier.