What is the Difference Between a CMA and an Appraisal? The world of real estate is fraught with terms, abbreviations and acronyms, some of which can be confusing for industry professionals, let alone the layperson. Two often-confused terms are a Comparative Market Analysis, or CMA, and an appraisal. While they are both methods of determining a property’s value, they are not interchangeable. They differ with regard to who conducts them, why they are conducted, how they are conducted, and for whom they are conducted. So, which is better, a CMA or an appraisal? The answer depends on one’s need. Anyone thinking about selling a property needs a CMA. Anyone wanting to find the loan value of a property needs an appraisal. A CMA is a service prepared by a REALTOR® to inform a seller about the expected sale price of his or her home, based on supply and demand within that market. This useful tool is created by evaluating similar homes nearby, also known as comparables, along with the agent’s own market expertise. A CMA considers recently sold comparable properties, active listings, pending sales and expired listings, thereby providing the seller with an idea of the competition he or she faces and an expectation of market activity. In addition to helping sellers determine competitive listing prices, REALTORS® also perform CMAs to help buyers make intelligent offers. Establishing a property’s value is equally important to lenders. When a buyer applies for a loan, the bank will generally order an appraisal, not to be confused with a CMA or home inspection, to be conducted by a licensed real estate appraiser who must follow strict licensing and industry guidelines as well as comply with national standards of practice. The appraised value will determine how much a lender is willing to give a buyer to buy that particular property. In contrast to a REALTOR®, an appraiser has no vested interest in the transaction. The appraisal is an appraiser’s opinion of the value of the property regardless of the price the seller may be hoping to sell the property for or the buyer may be hoping to buy it for. Unlike a CMA, which uses new data to look into the future of the market to determine what a property should cost, an appraisal typically will only be based on past sales. While sold properties give a view of the market during a specific time period, they do not give much guidance as to its direction. In addition to the sales comparison approach, an appraiser also uses the cost approach, especially for new properties, which is an evaluation of how much money it would cost to replace the property if it were to be destroyed. So, the next time you finds yourself mired in the endless sea of real estate terminology, the best way to navigate through the confusion surrounding a CMA and an appraisal is to simply remember that an appraisal is conducted by an appraiser for a lending institution, while a CMA is performed by a REALTOR® to help a seller settle on a competitive sale price. Consult an appraiser or REALTOR® for the specific services you need.
Posted on: Thu, 13 Nov 2014 17:11:57 +0000
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