What’s the difference between an Appraisal and a CMA?
Many sellers have asked me if they need an appraisal or will the free CMA (comparative market analysis) I provide work just as well? Each is a different report and each serve different functions. In most cases, Realtors are not appraisers and Appraisers are not selling Real Estate. The Realtor deals with the inventory of property today while the Appraiser deals with what has been sold in the past few months. Both have different licenses, but when it comes down to lending money, a mortgage company or bank will recognize only the appraisal.
The CMA provides a competitive analysis comparing similar properties that are presently for sale and properties which have sold recently. Prior to listing the property, I may actually recommend an appraisal by a licensed appraiser. In truth, both reports utilize comparable properties, but in different ways. Ironically, some appraisers will contact the Realtor to understand the listing price calculation and if the Realtor has comps to back it up. I am always happy to provide my CMA and any new “sold” MLS (multiple listing services) reports. If I’m the listing agent, I meet the appraiser at the property and point out items that enhance the listing.
This doesn’t mean the Realtor has anything to do with the final analysis the Appraiser provides to the lender, but it’s helpful for all parties to be aware of the pluses, such as new improvements, upgraded appliances or anything that has enhanced the property since the property went on the market. Most lenders require the new buyer have the home inspected prior to closing and if there are problems reported, the appraisal may fall below the offer price. In the event the property didn’t “appraise”, the buyer has the right to renegotiate the price or walk away. Of course the seller may not want to sell at the new appraisal price and may choose to terminate the agreement as well.
A good CMA will lessen the risk of a terminated agreement. Sellers who want to price their property over market value may lengthen the time for an offer or require price reductions until the listing is positioned correctly. In some planned communities, CMA’s are easier to do, because the homes are much the same in style, number of rooms, lot size and location. Areas in Santa Fe such as the east side are more difficult to analyze because of site specific amenities. It’s not uncommon to find a 5,000 sq. ft., 6 bedroom, and 4 bath home next to an 850 sq. ft., 2 bedrooms, 1 bath house that was built in the 1920’s. Further down the street, you may even find a duplex built in the 1950’s. How can you compare these properties? This may be a time your Realtor would recommend using an Appraiser to compare recent sales of comparable properties and assess whether the property in question is properly positioned in the market.
A CMA provides information to assure the property is competitive with similar homes. Your Realtor should be watching the market trends. Are prices moving up because the supply is shrinking or have homes been on the market for extended months with no sales? This may be why your Realtor is asking you for a price reduction. No offers, no showings equate to possibly overpriced property. A good CMA shows active listings of what is for sale today. More importantly, the CMA should identify comparable homes that have sold in the past 6 months. Why 6 months? An appraisal is only valid for six months.
A good CMA prepared by your Realtor and a good appraisal should assure both seller and buyer they are right on target for the property under consideration