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Key Differences Between A CMA and Real Estate Appraisal

April 21, 2022
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When you consider buying or selling a home, you're bound to hear the term comparative market analysis or CMA. Likewise, you will quickly learn about a real estate appraisal as well. This is common real estate terminology for a real estate agent. For a consumer, that is not always the case. There are real differences in a CMA vs Appraisal, we will dig into those differences in this article.

Real Estate agents need to recognize that many buyers and sellers have no idea of the difference between these terms. As Realtors, it's our job to educate them.

We will look at some common differences between a comparative market analysis and a real estate appraisal. While similar in some aspects, they are very different from one another.

What is a Comparative Market Analysis (CMA)?

A CMA is information gathered by real estate professionals of comparable sales in a given area. A comparative market analysis is used to establish the market value of a particular property.

Comparative market analysis can be performed with either residential or commercial properties. In a residential CMA, the agent will compare the sale prices of similar homes in the area to establish a median price for thatzip code, type of home, size of the house, and so on.

A Commercial CMA will compare similar businesses' sale prices to establish a median price for that type of business.

what is a cma?

Real Estate Agents Use "Comps" to Establish Value

The comps are properties that are most similar or comparable homes to the subject property. They should be of similar square footage, style, location, number of bedrooms, and amenities. An agent will make adjustments up and down to arrive at fair market value.

For example, if the subject property has a dated kitchen and the other comparable properties have renovated kitchens, a downward adjustment in value would need to be made in the home’s value.

Real Estate agents will make adjustments with all of the properties in order to determine an accurate list price and probably sale price.

The information will be put together into a CMA report. The report will typically include sold properties, pending sales, and homes currently listed sale. The most weight will be given to sold homes to establish value.
Agents don't know what pending homes have sold for. You also never want to hang your hat on homes for sale when determining value, as the price can change at a moment's notice.

Many buyer's agents will use this home valuation method in order to establish an offer price. The CMA is a great way to see how realistic the seller's asking price is.

What is an appraisal?

A home appraisal is a professional opinion of value of a particular property. An appraisal is different from a CMA because it is performed by a licensed appraiser and is necessary for any real estate transactions that use financing.

A professional appraiser uses something called the uniform standards of professional appraisal practices in order to compare what he or she believes the market value of a property to be and provides this information in an appraisal report. Appraisers use comparable sales of similar properties just like real estate agents do, this is called the sales comparison approach.

Real Estate appraisers are often hired by lenders when providing financing to buyers intending to purchase a home.

They will verify whether or not a property is worth less than what was agreed upon in a purchase and sale. Lenders often require appraisals to ensure they lend on properties with the proper value.

Like real estate agents, an appraiser will look at the property's condition, location, amenities, lot size, and other factors. Unlike the real estate broker, the appraiser has no vested interest in the value of your home.

Appraisers will create an appraisal report that will be submitted to the lender for consideration. Lenders will use this information to lend a specified amount of money to the home buyers and support the value of a home.

What Are The Differences Between a CMA and Real Estate Appraisal?

There are a few key differences between a CMA and an appraisal. The big difference is that appraisers are licensed professionals who typically work for lenders when verifying the value of properties, so an appraisal can only be done by a licensed real estate appraiser.

CMA's are not regulated by any professional organization and are often provided by real estate agents as a service. Home appraisers go through licensing and certification before being able to provide an appraisal. On the other hand, a real estate agent can be newly licensed and perform a CMA.

Finally, appraisals can be used as part of the purchase or sale agreement, while CMA's generally serve as documentation only.

Both real estate agents and appraisers use recent sales data from comparable sales to estimate value.

While heavily relied upon, an appraisal is no more an estimate of value than a comparative market analysis. Sometimes lenders place far too much stock in an appraisal seeing it as gospel regarding home value.

Real Estate appraisers are human, just like the rest of us, and do make mistakes from time to time.

How Can I Get a Comparative Market Analysis?

If you would like to get an analysis of the value of your property, call a local real estate agent. Realtors routinely provide estimates of value for free. Agents provide this service in the hopes of getting future business. Most agents will provide a CMA even if you have no plans to sell and are just curious about the current value.

When you make the call to an agent, just be honest. Don't tell the agent you are planning on selling if that's not the case. Agents will appreciate your honesty. If selling is not a priority, they will be able to fit you into their schedule rather than making an immediate beeline to your home.

An agent visiting your home will be more accurate at estimating fair market value than an online website. Far too many people look at sites like Zillow and believe the stated value.

Final Thoughts

An agent’s CMA and real estate appraisal are both essential documents in the process of buying and selling a home. It is important to understand the differences whether you're a buyer or seller.

Hopefully, the information provided has been enlightening for understanding these valuation methods. You can always ask a local real estate agent if you are still unsure.

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