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WHAT IS THE PURPOSE OF A REAL ESTATE COMPARATIVE MARKET ANALYSIS?

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What is a CMA?

A CMA is an estimated approximation of the probable selling price of a real estate property. The price typically is expressed as a range between two prices rather than a single value. A CMA reflects the following information about your property:

A CMA reflects the following information:

  1. An inspection of the subject property in relation to the value
  2. An analysis of the subject neighborhood In which your property is positioned
  3. An analysis of local and regional market information, statistics, and trends
  4. A description of comparable properties that are similar to the subject property

A key principle of CMAs is that they are built on comparisons between the property being evaluated and other properties—both those recently sold and those on the market now—that is substantially similar to it. CMAs must be prepared by a licensed real estate broker, agent, or salesperson, or a registered, licensed, or certified appraiser. At the same time, a CMA is different than an appraisal.

A CMA reflects a licensed real estate broker’s analysis of similar, recently sold properties to derive an indication of the probable sales price of a particular property. It is not an appraisal and should not be referred to as one. Module 5 will have more to say about how appraisals compare with CMAs and how real estate agents work with appraisers.

The most common are CMA, Appraisal, Automated Valuation Model, and Broker Price Opinion. The 4 valuation models serve different purposes.

We will focus here on the CMA which is a critical part of selling a property.

The purpose we will conduct a CMA is to establish an exact, truthful, reasonable range of value for your property to get the most offers. Pricing to high cause many issues. An accurate range is one that reflects the market conditions in the NOW.

The CMA is to help you identify an asking price and to get a reasonable offer price. In other words, a CMA provides an objective, market-driven starting point for pricing properties.

SELLING

Every agent has a story (probably many stories!) of sellers who overestimated the value of their home. Many factors can contribute to this misperception of value. Sellers might hear exaggerated sales amounts for neighboring homes through local gossip. They might apply broad market trends and simplistic assumptions to come up with an unreasonably high value. They might believe they can recoup the cost of every home improvement they have made over the years. Perhaps above all, they are likely to attach a high value to their home based on their emotions and pride of ownership.

A CMA provides the data and reasoning to help sellers see not only what the value of their home is, but why that value is accurate. Sellers who can see and understand the objective logic for valuing their home are more likely to list their home at an accurate price for its market. As a result, they are also more likely to sell their home quickly and efficiently. Owners who are able to sell promptly avoid much of the stress and disruption of repeated showings of their homes. If they are under pressure to move—for example, to follow a job or downsize to a more affordable home—an efficient sale saves them further anxiety.

By the way, sellers are sometimes prone to undervalue their property—such as when an estate is interested in selling a home quickly to distribute the proceeds. A CMA helps protect sellers against undervaluing as well as overvaluing a home.

A well-researched CMA is a listing agent’s greatest tool in pricing a home appropriately. A listing that is properly priced is more likely to sell quickly and efficiently. A listing that is overpriced will not be competitive in its market and will more likely languish without offers. Overpriced, unsold listings are efficiency- and income-killers.

WHAT IS YOUR ADVANTAGE FROM A CMA AS A SELLER

  • Sellers receive a fact-based, objective assessment of their home’s value
  • Sellers don’t experience the stress and disruption that can occur when homes languish on the market.
  • Sellers are protected from undervaluing their home to their financial disadvantage.
  • Sellers avoid the delay that occurs when they accept a high offer and the property does not appraise.

CODE OF ETHICS

Pricing and the REALTOR® Code of Ethics

To describe their roles and responsibilities, real estate practitioners can find no better resource than the Code of Ethics developed by NAR. Article 11 focuses on the real estate agent’s role and responsibilities in listing properties, advertising, representing a seller or buyer, and concluding transactions. Article 11 also speaks to the issue of a real estate professional’s responsibilities when preparing an opinion of property value or price.

What the Code Says

Article 11 reads:

The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, land brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.

REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth. (Amended 1/10)

Standard of Practice 11-1 reads:

When REALTORS® prepare opinions of real property value or price they must:

1) be knowledgeable about the type of property being valued,

2) have access to the information and resources necessary to formulate an accurate opinion, and

3) be familiar with the area where the subject property is located unless lack of any of these is disclosed to the party requesting the opinion in advance.

 When an opinion of value or price is prepared other than in pursuit of a listing or to assist a potential purchaser in formulating a purchase offer, the opinion shall include the following unless the party requesting the opinion requires a specific type of report or different data set:

1) identification of the subject property

2) date prepared

3) defined value or price

4) limiting conditions, including statements of purpose(s) and intended user(s)

5) any present or contemplated interest, including the possibility of representing the seller/landlord or buyers/tenants

6) basis for the opinion, including applicable market data

7) if the opinion is not an appraisal, a statement to that effect

8) disclosure of whether and when a physical inspection of the property’s exterior was conducted

9) disclosure of whether and when a physical inspection of the property’s interior was conducted

10) disclosure of whether the REALTOR® has any conflicts of interest (Amended 1/14)

Standard of Practice 11-2 reads:

The obligations of the Code of Ethics in respect of real estate disciplines other than appraisal shall be interpreted and applied in accordance with the standards of competence and practice which clients and the public reasonably require to protect their rights and interests considering the complexity of the transaction, the availability of expert assistance, and, where the REALTOR® is an agent or subagent, the obligations of a fiduciary. (Adopted 1/95)

TERMS TO REMEMBER

Before exploring more closely the process of researching, preparing, and presenting CMAs, it is important to understand some basic terms and concepts of valuation.

Subject

The property being evaluated.

Comparable

A recently sold property that is substantially similar to the subject. Comparables are used as a basis for determining the value of the subject. The term comp is often used as an abbreviated version of the term comparable.

Competition

A currently listed property that can compete for the likely buyers of a given subject.

Adjustment

The amount added to or subtracted from the sales price of a comparable property to arrive at an indicated value for the subject property. Not all comparables require adjustments. Module 3 has much more to say about when adjustments are needed and how to make them.

Neighborhood

A loosely defined geographical location within a city, town, or suburb. A neighborhood often consists of social communities with considerable face-to-face interaction among their members. Neighborhoods are important because prices vary considerably in different neighborhoods.

Cost

The total amount spent to acquire or build a property or property component. A cost is a historic quantity and does not vary over time.

Price

The amount for which a specific property sold at a particular point in time, or at which a property is currently being marketed. Price might or might not reflect market value.

Market value

The most likely price a property should sell for in a competitive and open market, where both buyer and seller act prudently and knowledgeably and neither is under any undue duress to complete the transaction and where the property has been exposed to the open market for a reasonable time. The market value is also referred to as the fair market value or fair market price.

 

 

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About The Author
Edward Winfrey

Edward S. Winfrey is the Founder/CMO of Nikindi Business Solutions (NBS Global). NBS Global is a marketing Consulting firm located in Chicago Illinois. We at NBS Global specialize in everything in the marketing dimension. We conduct all marketing activities and also function as an external marketing department for some firms. An "external marketing department (EMD)" is when a consultant firm develops a marketing department for the purpose of establishing a marketing department to later turn the duties over to group of new internal employees who will become the primary MKT department once they are trained properly on the new activities, strategies and tactics that were designed and created my the consultant firm.

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