CMA stands for comparative market analysis and is widely used by real estate agents/Realtors to establish price range for the home the CMA report is created for. Report can be used both by sellers and buyers as a guide to establish an offer price or a listing price. CMA is an evaluation of similar recently sold homes in the past 6 months that can be compared to a subject property.
Licensed real estate appraisers who are hired by lending institutions to appraise properties before the loan is approved typically use three appraisal methods:
1. Sales comparison approach
2. Cost approach
3. Income approach
Respective method addresses a particular type of property.
SALES COMPARISON APPROACH
In this method an estimate of property value is obtained by comparing the subject home (property being appraised) with sold homes (comps) that are similar to the subject property. Appraisal includes at least 3 to 5 recent sales within 6 or less months and they have to be within less than one mile to the subject property if no comps can be found from the closest neighborhood. This method is considered the most reliable of all three methods in evaluating single family homes. Because no two properties are exactly identical, each comp must be examined for similarities and differences between comp and the house being appraised. Following are the elements of comparison for which adjustments must be considered:
♦ Location – similar homes may have different values from one neighborhood to another or even between subdivisions within the same neighborhood
♦ Physical features & amenities – size, age, and condition may require adjustments
♦ Market conditions – supply and demand, mortgage interest rates and other economic indicators must be taken under consideration
♦ Conditions of the sale – adjustments must be made for reasons that would affect the sale, for example: a sale between family members or foreclosure
♦ Financing terms – that includes adjustments for the differences such as mortgage loan terms and seller financing
♦ Market conditions since the day of sale – if economic changes occur between the date of sale of comps and the date of evaluation adjustments must be made