The Appraisal vs the CMA...
One of the basic activities in the real estate business is helping to establish the value of real property. Of course, not all property is residential so there are numerous determinations on property. However, for purpose of this article I will be speaking mainly to the valuation of residential property.
There are some very in-depth principles that are unilateral in the industry. Appraisers use these in helping us construct a logical and truthful Comparative Market Analysis for the Lenders.
These Appraiser Principles are: (to name a few)
Supply and Demand
Highest and best use
Progression and regression
Luckily, while Realtors have studied these and many other principles in order to be licensed, the guy or gal that really influences and estimates of the value of real estate is the Appraiser.
In determining Market Value, it is basically an "opinion of the price that a willing seller and willing buyer can agree upon as long as it is legal transaction. So, there is the Realtor’s “opinion of value” but if differs because it is an “estimate” based on comparables in the neighborhood, it is not performed by a disinterested third party, plus there are no professional standards to a Competitive Market Analysis (CMA). It matters for Realtors to get it right so the property will sell, it is just completely different than that of an appraiser.
Appraisers, on the other hand, have specific guidelines and are licensed by the state for the deeper dive into property valuation and market analysis based on:
1. Identify the purpose
2. Assimilate relevant data, as mentioned above.
3. Assess the highest and best use
4. Estimate the value of the land
5. Apply the three approaches to estimating value
6. Reconcile the values from the approaches
7. Compile the report” for the Lender
A Realtor who wants to establish the sale/listing price of your home will use a very scaled-down version of the appraiser’s sales comparison of which we call the Comparative Market Analysis (CMA). The CMA serves a very important purpose but in no way is it or should it ever be construed as any type of appraisal on the property. For one thing, the Realtor is not unbiased where an appraiser is a disinterested 3rd party. The Realtor is using comparable sales, expired, pended and closed deals within a certain range of area to establish a low, medium and high “suggestion” for the owner of the property to list their home. Secondly, this CMA is not all-inclusive such as the appraisers. It is more of an opinion made with current market history of properties. It is a suggested price that ultimately you the seller pick. However, a home that is priced to high will not budge. Sometimes ego get’s in the way of the seller’s success. People do not pay for your emotional attachment. Your valuation is even more of an opinion than the Realtors. (I mean that in a loving way)
Long story short, property valuation is not a perfect science. Many people think the appraisers are the bad guys or gals but, they keep things real. It truly is a TEAM effort getting to the finish line of the home sale but getting it right, is a long-term Win/Win situation for everyone even if there must be adjustments to our thinking along the way. Appraisers are imperative to the process and I don’t know a Realtor on earth that doesn’t want that Win for their client.
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