Let me go back to the beginning, CMA is the acronym for Comparable Market Analysis. I have heard some agents use the words Competitive Market Analysis. Another industry term used by REO managers is Broker Price Opinion. So in layman terms, it is an evaluation of a real estate agent as to what your home may sell for. In this day and age of the Internet which has transformed the real estate industry, one of the valuable services a real estate agent can provide their clients is the preparation and presentation of a CMA. One of the most important fact is that this CMA is available without charge, without obligation, at any time it is needed. That is FREE. You may have many reasons why you want a CMA, the first of course and most often is the value of your home when you have decided to sell. The other reasons are for estate planning, determining insurance needs, tax preparation, business investments, divorce and death; the list can go on and on.
Appraisals are performed only by licensed appraisers for a fee, and generally following an application for a purchase mortgage or equity loan (HELOC). Today the lenders cannot order the appraisal directly. Because of the last financial debacle, the lenders order an appraisal through a third party company who then hires the appraiser so that the lender cannot influence the value.
Normally the appraisers will use two methods of determining the market value of the property. (1) “Cost approach” which determines the replacement cost of your home. And (2) “Comparison approach” which compares your home with the recent sales of similar properties located in the same area and sold under similar market conditions (known as comps) The “Comparison approach” will be very much like the CMA prepared by the real estate agent.
Both the appraiser and the real estate agent are concerned with one basic purpose: to determine the “fair market value” of your home. “Market Value” is defined by the American Institute of Real Estate Appraisers as “The Highest Price estimated in terms of money which the property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with full knowledge of all the uses to which it is adapted and for which it is capable of being used.
To do the research, there is the public records to be able to find the lot size, zoning, square footage of the building, the year built. Then the agent tours the property making all the notations such as the number and size of bedrooms including closets, bathroom sizes and amenities and whether it has been remodeled and to what extent, type of heating and AC if applicable, garage space and whether it has been improved or converted, number of fireplaces and type of decoration, kitchen (size, remodeled, when, cost, built in appliances), decks, balconies, enclosed patios, pool/spa, fences, design and appeal of the house,
Some caveat, a brand new home with the identical lot size, square footage, etc would sell for more than one that is 60 years only, so would not be a good comparison unless your home is brand new. The value in the agent’s second part of the CMA is if the agent has toured the inside of the homes that are being compared to your property. Indeed, it would be very helpful if the agent took interior and exterior pictures. The reason I have found is that listing agents can use a professional photographer or a wide angle lense camera that distorts the true picture of the home. If the agent has not physically toured the house in the past, then they will be able to see the photos on the MLS online. In my
experience, walking the house is much better than just looking at photos. Of course, if the agent has recorded a video tour while touring the comparables, you have now found an agent that is very serious about coming up with an accurate CMA.
In this part there are several parts to consider. The choice of which houses to compare to yours is the most important. In making their choices, the agent should consider any subtle or not so subtle differences. For those who know the major streets in Mar Vista, one should not compare a home that is located north of Venice Blvd to a home that sold south of Venice Bl. As simple as this may sound, many agents use a radius search (MLS choice) for comps search which does not take into account the above mentioned rule. This is the reason for the George Chung Realtors CMA Area. After 42 years in the real estate business with 40 of them in Mar Vista, I have made a database of every single home in Mar Vista/90066 and the surrounding neighborhoods and gave each one an acronym like “MV2A”. I did not arbitrarily draw lines on a map. I took the time to go over each house (all 13,000 plus homes) and assigned a CMA Area to it in my database, so that when I gather comps for a CMA requested by a homeowner in my neighborhood, I had 100% confidence that I was choosing the right comps based on the location. I remember the old adage about real estate value; it is location, location, location!