COMPARATIVE MARKET ANALYSIS
CMA stands for Comparative Market Analysis, and NO, a CMA is NOT A FREE APPRAISAL. In fact, a CMA is completely different than an appraisal. CMA has to do with determining an asking price, a listing price, a place to start when putting your home on the market. But comparing a CMA to an unbiased appraisal done by a certified expert, well, that’s like comparing apples and oranges. Many people try to pass off a Comparative Market Analysis as a true appraisal and will advertise online- ‘GET YOUR FREE APPRAISAL HERE’. But it CMA’s and certified appraisals were the same, then your lender would use THAT for underwriting your loan – and they don’t. They order a genuine appraisal.
They often promote it as a ‘free appraisal’. I have seen it hundreds of times. In fact, you will even see web articles with some writer saying you can get a ‘free appraisal’ by calling a real estate agent. Here’s the true test of that statement. Have you EVER found a lender who will underwrite a loan with a CMA? The Comparative Market Analysis is completely different from an appraisal. That does not mean it doesn’t have a place or serve a purpose.
AN APPRAISAL PROVIDES A DOCUMENTED VALUE
A CMA deals more with trends within a market as a whole whereas an appraisal deals with specific historical data that can be related to a particular property. Most important is the fact that the appraisal value is one that can be fully supported and defensible, should the need arise. A Comparative Market Analysis gives more of a value range and, shall we say, a ‘ball park guess’ of value. The appraised value is also computed using multiple types of analysis, all of which are widely used and accepted within the financial industry. The appraiser just doesn’t look at one ‘avenue’ to value, but rather uses multiple analysis methods, all of which should converge down the road to a logical final reconciled value.
APPRAISALS CREATED BY INDEPENDENT PROFESSIONALS
One of the biggest differences between an appraisal and a comparative market analysis is in the person behind the product. Appraisals are created by state licensed or certified professionals with proven experience and training specific to the type of property being appraised. On the other hand, a CMA is created by a real estate agent who may be new to the business, new to the area or simply not have a solid enough grasp on the valuation concepts. Any real estate agent, regardless of how long they have been in the busines, is allowed to perform a Comparative Market Analysis.
REAL ESTATE AGENTS INCOME TIED TO CMA VALUE
There is also the ‘independence’ issue. The appraiser provides an independent opinion of value with ‘no dog in the hunt’. In other words, the appraiser has no financial interest or relationship to the property. Conversely, the CMA is prepared by a real estate whose income is directly related getting that home listing. So the agent certainly DOES have an income-related interest in the property and in getting the listing. Let’s say you have two agents each give you a CMA on your home. One comes in at $200,000 and the other at $250,000. Now which agent would you llet list your home? Of course, the agent who brought in the $250,000 will probably get the listing. But the agent who serves up ‘pie in the sky’ will most likely come back later to suggest a drop in the asking price. Thankfully the agents that paint an ‘overly-optimistic’ picture are not the majority, but there enough that do that homeowners should be aware of that possibility.
COMPARATIVE MARKET ANALYSIS NO USE FOR UNDERWRITING PURPOSES
So there you have it. The CMA is free, gives a ball park figure and a value range and can be performed by any real estate agent. The appraisal is an unbiased, supportive value arrived by using multiple analysis methods and created by a licensed or certified professional, with specific value training on the type of property under consideration. Each product has an appropriate use and place, one regarding asking price and the other regarding a fair and specific market value, usually for underwriting purposes.
Sherie Smith, Certified General Real Estate Appraiser and Consultant, Copyright 2010