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Comparative Market Analysis is not appraisal. Appraisal in not Comparative Market Analysis

Posted by Rona Fischman  January 13, 2009 03:02 PM

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Yesterday, I told N. that she needed an appraisal. Why didn’t I say she should get a Comparative Market Analysis (CMA) from a real estate agent? Because N. will be working with a lender. The value figure she needs is the amount that a lender will accept for collateral.

An appraiser uses the standards that lenders require to establish the value of property used as collateral. They also valuate in legal matters such as divorce and estate sales. That’s their job.

Real estate agents establish fair market value in order to help their clients sell and buy homes. Potential listing agents do a Comparative Market Analysis as data to establish fair market value. This is only one piece of the marketing plan to establish the highest price that a buyer may pay for the property. Buyer’s agents work a lot like potential listing agents. Their goal is to establish a fair market value as part of a negotiation plan. That information is one part of the advice on how to make an offer that is the lowest possible one that a seller would accept.

Both appraisers and real estate agents use comparable properties that have sold recently. These comparables are the best match by location, size and type. “Best match” is in the eye of the beholder.

Both appraisers and real estate agents consider the market conditions. Appraisers generally work with established data based on town or city. Real estate agents can look at specific neighborhood patterns, or the sale of certain types of house. The appraiser’s data is less locally sensitive.
The agents also look at properties that are under agreement (have a signed contract, but have not closed) for indications of both value and market conditions. The agents look at properties that were on the market, but never sold for indications of both value and market conditions.

Did I miss anything?

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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13 comments so far...
  1. Well stated Rona.

    The real estate agents who prepare a Comparative Market Analysis for their buyer and seller clients represent the interests of their respective parties. A licensed appraiser is employed by the lender (even though the borrower is paying the appraisal fee). The lender is only interested in the opinion of value determined by the appraiser - not the real estate agents. Experienced agents will generally be pretty close to the value established by the appraiser.

    When the market was rising during the boom, sellers could stretch their list price a little higher than market value. Not in this market. An assertive seller might consider listing their property for less than today's market value, in anticipation of the fact that we probably haven't seen the last price corrections in New England real estate values.

    Posted by Jim January 13, 09 04:28 PM
  1. I received Comparative Market Analysis from three separate RE agencies before deciding which one to list with. Two of the three were more of a promo package for agency than a market analysis. The listing price suggestions between the three had a 15% spread. Two of the three were within 2%. I believe the third had a buyer in mind and would be able to sell the house quickly taking the whole commission. Throw out your Comparative Market Analysis and get an appraisal, or better yet do that before you talk to RE agents, who are notorious for acting on their own best interest, not that of the seller or buyer.

    Posted by Worse than used car salesmen January 13, 09 09:53 PM
  1. Worse than,
    If two of the three came in close to one another. Chances are, they had good data. If all agents work in their own self-interest, how could you possibly hire anyone?
    Why didn't you just hire an appraiser and sell it yourself? Is it that you actually found some value in having an agent? How can that be??

    Posted by Rona January 13, 09 10:17 PM
  1. I thought that the CMA was to establish a FAIR price; neither the highest nor the lowest one could 'get away with'.
    I met with several agents before I listed my home, and I chose the one that presented me with enough data to determine what a comparable home in comparable condition was currently selling for. There was a range of 20,000 since no house was exactly the same. We set the price right in the middle, which was within a thousand dollars of the closest "comps" [all recent sales]. Interestingly, I did not choose the agents that recommended a much higher listing price as their data was not as strong. After such careful pricing, it is very frustrating to read all the advice to buyers urging them to offer some percentage less than asking price regardless of how fair that price may be. I will not even counter an offer like this; I just say no as I have already priced my home fairly.

    Posted by Anne January 13, 09 10:46 PM
  1. Anne, it doesn't matter if YOU think your house is priced fairly. In this market it's all about the buyer. They don't care about fair prices because they don't have to.

    Posted by Barbeliza January 14, 09 07:03 AM
  1. Anne,
    You used the agent interviews the way a good consumer should. You looked at the data and chose the agent who gave the best case for why you should market your home his/her way.
    Advice given in percentages above and below asking price is useless. I have been saying that for years on this blog.
    1. Only theorists think in percentages. Sellers think in the amount of money coming to them in the deal. They are thinking $50K! not 10 percent! Buyers should be thinking in terms of what they are paying every month and what they are paying for a particular house in comparison with what other people are paying for homes like it.
    2. If you are negotiating based on asking price, you are fighting with a phantom. Asking prices are created by the seller and his/her agent. They can go down tens of thousands of dollars before they meet market value.

    Posted by Rona January 14, 09 10:29 AM
  1. Rona, amazing how many people still don't get your second point.

    I refer you to the Globe article on the Mandarin Oriental

    Posted by charles January 14, 09 03:18 PM
  1. Great insight!

    Posted by BJ Ray January 14, 09 03:21 PM
  1. If only sellers agents could get through to sellers on these points. Comparing recent (6 months) sales to current prices for similar houses up for sale in my town are showing about a $150,000 difference with sellers that won't budge. Either the sellers are stubborn beyond belief or their agents are holding onto false hope for an immediate bounce back. Either way, the numbers are still WAY off.

    Posted by Anna January 14, 09 05:28 PM
  1. Anna, I've found that sellers who won't budge on price often can't, as they have refinanced or gotten second mortgages that they can't pay off if they sell below a certain point. Some will come out and admit that, but others will just act stubborn and refuse to reduce. We had a debate about pricing in my office the other day - the manager wants us to get listings so is telling agents to go along with sellers' overpriced desires, then convince them to reduce later on ("if you don't do it someone else will"), but most of the agents pushed back on that preferring to be honest about market value. Interesting phenomenon in this market.

    BTW - appraisers use neighborhood statistics in their analysis, and uses them to apply +/- factors; their work is much more detailed than a market CMA.

    Posted by Melanie January 14, 09 08:47 PM
  1. Melanie is right that appraisals are much more detailed. There are neighborhood factors, too. But, agents can be more sensitive to local market factors because their work is less standardized. The room for subjectivity is a double-edged sword, as some commenters have already described.

    Posted by Rona January 14, 09 09:07 PM
  1. I am hoping to buy my first house. I have been working with a broker who has provided me with comps on the properties I have seen so far. The discussion about comps vs appraisals is very interesting and enlightening to me. I have a few questions. Should I hire an independent appraiser to appraise a property I wish to buy? The listing sheet showed the most current appraisal, is this a valid guide to value? I have been told that banks' lending decisions are based on comprable sales in the area, is this true? Thank you all for your input.

    Posted by Richard Mahoney February 12, 09 09:11 AM
  1. I refinanced and got an appraisal. Two months later we decided to move closer to my job to cut down on the commute. The CMA was 50K below the two month old appraisal. Could that be the real market price of our house?

    Posted by Anthony June 10, 09 05:20 PM
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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