Why is a comparative market analysis CMA not considered an appraisal quizlet?

Selling • August 16, 2021

It can be difficult for sellers to distinguish between two methods of finding the value of their home: a Comparative Market Analysis (CMA) and a home appraisal. Though they share many similarities, there are key differences in how the two approaches ultimately arrive at a listing price for your home.

The Difference Between a Comparative Market Analysis and an Appraisal

Comparative Market Analysis (CMA)

A CMA is conducted by an agent using their knowledge of the local market in conjunction with information available to them on the multiple listing service (MLS), which contains data on sold homes and market trends. A CMA helps to price the home more accurately, keeping the property competitive in the current market. For those who are thinking of selling their home For Sale By Owner (FSBO), it’s worth noting that you will not be able to conduct a CMA on your own, since, among other things, access to the MLS is exclusive to real estate agents.

Your agent’s analysis accounts for the various factors that influence home prices to arrive at an accurate estimate of your home’s value. A CMA compares your home to others in your area that have either recently sold, are currently on the market, or had previously listed but have since expired, typically using data from the past three-to-six months. Comparable homes, or “comps,” are homes whose characteristics are similar to your own, such as the housing type, condition, and the square footage and property size. A thorough CMA will provide information on what homes in your area are selling for, how long they were on the market, and the difference between their listing and sold price, and will list a low, median, and high selling price for your home.

Appraisal

The main difference between an appraisal and a CMA is the personnel involved. Whereas a CMA is conducted by a real estate agent, an appraisal is carried out by a licensed appraiser on behalf of the bank. Once a buyer applies for a loan to purchase your home, the bank will order an appraisal of the property. Though appraisers use methods of comparison similar to an agent’s CMA, unlike a real estate agent, bank appraisers have no vested interest in the sale of the home. The goal of an appraiser’s visit is to determine your home’s fair market value to ensure that the bank isn’t lending more money to the buyer than needed.

For more resources on the selling process and to use our free home value calculator, visit the selling page on our website here:

Windermere – Selling

1. Definition of CMA (5 minutes)

A CMA is an unbiased estimate or opinion of the market value of real property by a real estate licensee who is not a licensed or certified appraiser. The valuation techniques used are similar to the three approaches to value employed by a licensed or certified appraiser.

CMA referenced as (interchangeable terms all in common usage):

Comparative Market Analysis

1. Comparative Market Analysis

2. Competitive Market Analysis

3. Comparable Market Analysis

4. Broker's Price Opinion (BPO)

5. Market Analysis

6. Opinion of Value

1. The Three Approaches To Value (30 minutes)

1. Market Data Approach or Sales Comparison Approach :

a. Identify properties with the same 'highest and proper use' that have sold recently (usually within the last six months). Must be an "arms-length" transaction.

1. Excluded would be conveyances such as 'short sales', bankruptcy or foreclosures or sales between relatives, etc.

b. Adjustments between subject property and comparables for significant differences such as location, physical characteristics, etc.

c. Similarities generally should be in the bathrooms, bedrooms, number of rooms, building age, style of house, condition of property, and lot size.

d. All comparable information should be reconciled and a value should be 'estimated'.

2. Cost Approach or Replacement Cost Approach :

a. Cost approach is based on the property's replacement cost.

b. Add together the building and land value (each computed separately).

1. Estimate the replacement cost of the building new.

2. Deduct all accrued depreciation from the replacement cost

3. Add the estimate land value to the depreciated replacement cost.

3. Income Approach :

a. Income approach is determined by the amount of net operating income the property will produce over its remaining economic life.

b. Steps to estimate by Income Approach

1. Estimate the potential annual gross income.

2. Adjusted Gross Income - Deduct an allowance for vacancy and collection loss.

3. Net Operating Income (NOI) Deduct all annual operating expenses of the property from Adjusted Gross Income.

NOTE: debt service and depreciation are not considered operating expenses for Income Approach, as they do not affect value.

4. Apply the appropriate capitalization rate to the Net Operating Income. (NOI ÷ Cap Rate)

C. Comparative Market Analysis (CMA) when using the Market Data Approach (20 minutes)

Properties recently sold that are similar to a particular property used to indicate a value for the subject property.

1. The more recent the sales and the fewer dissimilarities, the better the comparable.

2. It is best to use properties in the same neighborhood so seller can easily relate.

3. Also considered are homes on the market listed for sale but that have not sold (active).

4. Listing expired or withdrawn.

5. Listings under agreement.

D. Some uses of a CMA (15 minutes)

1. A sales agent as a listing tool to show a seller what their property should be priced at.

2. Assists a licensee to decide if they want to accept the listing or not.

a. If a seller wants more than the CMA indicates, sale agents may reject the listing.

b.The greater the similarity, the more accurate the CMA and the more likely the seller will accept the estimate of value.

3. Necessary for appraisers to set value for mortgage for borrowing purposes.

4. Establish value of real property in an estate.

5. Establish value of real property in a bankruptcy.

6. Establish value in an exchange of real property.

7. Establish value for a foreclosure or short sale.

8. Employed by mortgage lenders to verify values.

E. Massachusetts Appraisal Licenses (20 minutes)

1. Real Estate Trainee

2. State-Licensed Real Estate Appraiser

3. State-Certified Residential Real Estate Appraiser

4. State-Certified General Real Estate Appraiser

F. Discussion/Questions (30 minutes)

1. Who is eligible to do a CMA?

2. What happens if there are no comps available?

3. What does real estate licensee do if mortgage appraiser's appraisal comes in below sale price?

4. How detailed would a CMA be from a listing agent?

5. A licensee may or may not charge a fee for a CMA

6. Licensees must never imply they are a licensed or certified Appraiser

Sources:
In House Sales & Listing Local MLS - Form for new listing - NAR Form FHA and VA

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