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Why CMAs and Appraisals Aren't The Same

Written by on Thursday, 27 November 2014 8:54 am
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As part of the homebuying process, your real estate agent may create a comprehensive market analysis or CMA. Later, when you apply for a mortgage, a bank appraisal is conducted by a licensed appraiser. Are CMAs and appraisals the same thing?

While both CMAs and appraisals help determine a home's market value, their purposes are not the same. The CMA is a sales tool to help you find an offer price for the home you want to buy. The homes in the CMA include the home you want to buy plus similar nearby homes. This helps you see how the home you want compares to other homes so you have an idea what to offer.

A real estate professional may prepare a CMA for their sellers to help them choose a listing price. The CMA includes recently sold homes and homes for sale in the seller's neighborhood that are most similar to the seller's home in appearance, features, and general price range.

Although the CMA is used to help determine current market value, the seller's home is typically not even featured in the CMA. The CMA is merely a guide to help the seller learn what's happening in their local market, so they can better understand where their home fits in term of price ranges, based on location, features, size, condition and other factors.

The CMA offers the same advantages to you as a buyer. They help you better understand the local market. You can expand the search and get different results in a CMA simply by changing the zip code or the price range or the number of bedrooms and baths.

Appraisals are all about risk retention for banks and their customers. If the buyer is receiving financing through a bank, the bank will order an appraisal.

Unlike the CMA, a bank appraisal is a professional determination of a home's value. It's performed by a licensed appraiser, using guidelines established by the Federal Housing Finance Agency, which regulates federal housing loan guarantors such as FHA, VA and housing loan purchasers Fannie Mae and Freddie Mac.

An appraisal is a comprehensive look at a home's location, condition, and eligibility for federal guarantees. For example, the home you want may have porch steps but no handrail. If you want to buy the home with an FHA or VA-insured loan, your seller will have to repair or install a handrail. The FHA or VA appraiser will look at the home a second time to make sure the steps were made safe.

Appraisers use the same data in their market research to find comparable homes as Realtors do. They are also members of the MLS, but they have additional guidelines from the bank to follow to minimize risk to the bank and to the borrower. If home prices are falling, the appraiser takes the number of days a home has been on the market far more seriously.

When the appraisal is finished, the bank makes the decision to fund the loan, or it may require the seller to fix certain items and show proof that the repairs have been made before letting the loan proceed. If the loan doesn't meet federal lending guidelines, the bank will decline the loan.

Despite stricter lending and appraisal standards, most buyers' loan applications go through to closing. One reason the system works so well is that real estate agents are preparing CMAs that are better tuned to lending standards as well as market conditions. As a buyer, it's in your best interest to understand how lenders approach risk and to learn what the market is doing.

Simply put, you need both a CMA and an appraisal to determine market value. A CMA helps you decide what you should offer the seller. An appraisal determines what the lender is willing to lend to help you purchase a home.

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  About the author, Blanche Evans


  • Comment Link Hank Miller Monday, 01 December 2014 7:16 pm posted by Hank Miller

    Clearly I hit a nerve didn't I Marganit. Just to be clear, I'm a certified and SRA appraiser with over 26 years in the business as well as an associate broker, real estate is all I do. To your concerns:

    Appraisers don't set market value or establish sale price, the market does. Appraisers validate offers and act as the lender's eyes to establish that the lender is tying into a property that is worth what the contract says. Why would an appraiser - short of a few rare occurrences - appraise a home for more than a buyer pays? As for appraisers not getting contracts, that's not the role in a transaction so that is a dumb comment.

    As far as agents overestimating list prices to get listings, please don't tell me that you really believe that. Many agents routinely do that then 30 days in they start to tell sellers that the market has shifted, a reduction is in order. I've met agents again and again that just want a sign and exposure. If your view was accurate then we'd have no expireds, no withdrawns and nothing over 60 days DOM.

    As an agent and appraiser I'm "in" more markets than you'll ever be in. I have more and better data sources than you have, have a better pulse of the market, have a better ability to see things as an appraiser will (since they will come through) and have a much better ability to look at the past, present and forecast short term future.

    The nonsense comes from agents that have no idea how to mine or apply data, how to understand or communicate with appraisers or how the process works. The nonsense comes from an agent trying to tell me that they have ZERO vested interest in working the data to placate a seller. NAR trains agents to constantly pitch, sell, twist and essentially obfuscate the data all in the hopes of completing a sale. A CMA is nothing more than a tool in the box to toss at a client.

    Appraisers could care less, it's all math and if the contract makes sense and is supported, no worries. If not, then it's up the agent to demonstrate otherwise.

  • Comment Link Jack Markle Monday, 01 December 2014 4:29 pm posted by Jack Markle

    Marganit, you should consider to slow down and smell the roses. Appraisers are good people trying to do a good job. Just as there are not so competent agents, so there are some not so competent appraisers.

    It has always been my opinion after many years in the business (corroborated by some appraiser) that the appraisal process for loan purposes is to assure that the sales price falls into a reasonable range of value and, if it does, the value is brought in at the sales price. We've all experienced appraisers who are well off the mark but most always right on it.

    Good job overall, appraisers. Thanks for your hard work.

  • Comment Link Marganit Monday, 01 December 2014 3:48 pm posted by Marganit

    Joe and Hank are obviously appraisers. What they said is nonsense. In my market (Seattle), the final appraisal value is almost always the buyer's offer price. So you mean to tell me that this is such a science that buyers almost always come up with the same exact correct market price as appraisers? Nonsense! (And by the way, you disparage agents but buyers almost always work with agents to come up with these offer prices!! Oh the irony. I guess we don't need appraisers after all.)

    If appraisal is such a science, why do you receive the offer prior to coming up with a price? Banks should withhold that to see how good you really are.

    Agents cannot inflate value in order to "get a listing," Hank, because overpricing leads to NO SALES, stale listings, and unhappy clients. Buyer's agents need to get their clients the best price, not the most inflated price, because that's what buyers want -- a good deal.

    Agents also are actually working IN the market (i.e., buyers) not watching it from a distance. We know what buyers are saying about specific houses as well as neighborhoods.

    As was pointed out earlier, this is an art NOT a science. In the end, the value of a home is SOLELY determined by the market -- that is, what a buyer is willing to pay, period, not appraisers or even agents.

  • Comment Link Inna Sunday, 30 November 2014 8:05 pm posted by Inna

    In my experience as a Realtor, I hear about various ways people come up with CMA numbers and comparisons.

    I would recommend Realtors to talk to your appraisers, when you meet with them at properties, and get an idea of the criteria they use - at least the main points - this will help you make your CMA's more realistic for your clients. I did notice that different appraisers, depending on their expertise or knowledge, may give you different information.

    Since working with Real Estate Developer as Developer Liaison for 2 years and following appraisers around, I found there are some basic fundamental criteria which are used by appraisers. I am fairly confident with my CMA numbers when I present them to my clients. All Realtors should be - otherwise they should seek expert advise.

  • Comment Link Jack Markle Friday, 28 November 2014 5:37 pm posted by Jack Markle

    After over 50 years in the business (30 selling and 20 in lending), my conclusion is that the CMA not only tries to analyze where the market has been, but where it is going. The appraisal, on the other hand, pays some attention to market direction but goes more heavily to where the market has been. So, the appraiser puts most attention on past sales as opposed to current listings and pending sales. People must realize that in either case, it is an art, not a science.

  • Comment Link Joe Forrester Friday, 28 November 2014 8:54 am posted by Joe Forrester

    An appraisal is infinitely more in depth and the appraiser much more accountable. An appraisal license take years to acquire plus thousands of hours apprenticeship with a certified or general appraiser. Beginning Jan 1, 2015 a S Certified Residential Appraiser will require a 4 year degree. If your realtor is also Certified Resid. Appraiser you have the best scenario.

  • Comment Link Hank Miller Friday, 28 November 2014 6:28 am posted by Hank Miller

    A couple of other subtle but very important differences between an appraisal and CMA:

    1. An agent just getting a license can complete a CMA, any appraisal will be completed by an appraiser that's been an apprentice for 2000+ hours and typically better educated. Or, the appraisal will be reviewed by a more experienced appraiser to ensure accuracy.

    2. Data sources are typically much better and wider for appraisers. Most important, they typically have access to appraisal data sources that provide more accurate GLA figures - the crux of value.

    3. Appraiser adjustments are based upon the market and experience. IN some cases using paired sales analysis - most agents have no basis for adjustments nor to they understand pair sales analysis.

    The single most important difference is role in the process: MOTIVATION, Agents most often complete CMAs as part of the transaction, appraisers do not. Most typically, CMAs are done to encourage people to list - and sellers are routinely offered inflated opinions to encourage that.

    There are many more differences but the most glaring are quality and purpose.

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