Real Estate Agents often provide very accurate opinions of value based primarily on their very specific knowledge of a very specific market area. They are allowed a great deal of freedom in the way they arrive at that opinion. A state licensed or certified appraiser on the other hand has a very strict set of rules he must follow depending on the “Scope Of Work” of his assignment as outlined in his letter of engagement from the client. There are the Uniform Standards of Appraisal Practice as well as the various sets of rules and guidelines his clients may require, i.e. the IRS, and other federal and state agencies, GSEs (Government Sponsored Enterprises like FNMA, Freddie Mac et als) and many others.

The appraiser prepares the Sales Comparison Approach by researching sales that have occurred over a 12 month period or longer to establish the trend in values. Homes sold in "non-arms length" transactions and under duress are eliminated from the analysis. This large volume of sales is then used to isolate the incremental value contribution to the whole of various features and to understand the forces at work in this market over a period of time. Although a large volume of sales will be studied only the most relevant indicators of the subject value will be selected and cited in the appraisal. The other sales serve as supporting evidence and are retained in the appraiser's files. Because most appraisals are a "Summary" of a "Complete Appraisal" they list only the most relevant data.

Researching the appraisal is done by searching, reviewing, and analyzing various data sources including MLS, municipal data and commercially available resources. The appraisal relies on data obtained from these sources, much of which has been verified through multiple sources. In addition consultation with competent real estate professionals and government officials is made to obtain or verify information. Comparable sales descriptions are obtained from these sources and an exterior observation of the potential comparable properties is made to ascertain if there are an significant location influences. A diligent effort is made to uncover and verify all relevant factors that might have influenced the sales.

The cited sales include sales of homes that are slightly superior to the subject and homes that are slightly inferior to the subject thereby establishing a narrow bracket of high and low value that your home value lies between. Because settled sales can be very old considering that the actual agreement to purchase may have occurred many months prior to settlement and under vastly different market conditions it is also deemed prudent to analyze a significant number of expired, withdrawn and current listings to illustrate the upper limit of value, current value trend and competing supply. Expired and withdrawn listings of similar homes give evidence of what the market will not pay for a home with similar characteristics as the subject thus helping to establish the upper limit of value for the subject. Current listings reveal the direction values may be going and give an indication of supply and demand factors that are currently at play in the market. They also indicate the lowest price one may currently pay for a comparable property giving additional support to establishing the ceiling of the valuation bracket.

Appraisals made for lending purposes intended for federally regulated institutions or transactions have strict guidelines regarding ratios and percentages of adjustments. Only settled sales can be used as “primary” data and they must have occurred within the past 12 months as a maximum. Active listings, expired listings, pending contracts and sales that occurred more than 12 months prior to the date of value may be included as “supplementary” data to provide additional support to the conclusions arrived at via the analysis of “primary” data. Many people believe the appraiser does not pay attention to active listings however as I have mentioned that is not true. They are always considered even though they rarely show up in the “Summary Appraisal”. Today with so many declining markets their inclusion is becoming common.

The analysis and correlation of all this data is then used to provide a clear and accurate identification of the forces currently at work in the market and to provide a supported and defensible Opinion of Value as defined within the body of the report.

If you are seeking a potential listing price you need to know the current “list to sales price ratio” as well which will allow you to price the property appropriately to allow for negotiation. Too high a price will often result in a below market sales price. Just as a over priced product on a store shelf gets “shop worn” so does a real estate listing. If you are in a declining market, your first loss is your best loss. Time is against you. Price for a quick sale.

Paige
There are some other significant issues not addressed. Generally speaking appraisals only consider sold properties, because there is no dispute regarding the value. Most appraisals are supposed to be conservative because the lender does not want to lose if they have to foreclose and sell the property.

A Competitive Market Analysis is a snap shot of the current market at one point in time. It takes into account not only sold listings, but Active, Pending, and Expired listings. The fact is that buyers look at an average of 10-12 homes before making a decision. So when your home is going to be listed, your Realtor and you evaluate the 10-11 homes with which you are competing, and price accordingly.

In a market that is declining (and most, but not all US markets, are either flat or declining), you need to price a property slightly BELOW the actual sales value in order to attract buyers (and their brokers). The buyer that sees the home they purchase first sees it with a Realtor 90% of the time. So if you are not getting showings, then the price is too high. The rule of thumb is 10-12 showings should yield one offer. That ratio could be higher in slower markets.

If the market is going up, then you are going to want to price slightly above the market.

In this market price your property right and you will be much happier in the end. While the thought of getting a sky high price is enticing, you are better off pricing it aggressively and creating a "need" for the property than multiple price drops and looking desperate (losing your negotiating edge). Right now buyers are on the hunt for good deals so your lower-price strategy will likely gain traction more so then reaching for the stars and "hoping" to get a high number. Hey, maybe you will even be lucky enough to get a bidding war and get closer to that sky-high price :)

Good luck!

Paige, there is a significant difference between an appraisal and a CMA. An appraiser is a professional person who is evaluating the home primarily for the purpose of supporting a mortgage lender in determining how much the home is worth and thus mediating the risk associated with giving a loan to a buyer. When done at the discretion of the home seller, an appraisal should allow the seller to determine the market value of the home prior to listing. It is far more accurate than a CMA because it is done by a professional. The appraiser uses the market value of like homes in your neighborhood which has been established by the sold price of those homes over the past 6 months. Remember the "market value" of a home is established by the sale price not the asking price.

A CMA provided by a real estate professional uses the same data as used by the appraiser as far as "sold" homes is concerned. In addition we try to look at all of the current (past 6 months) activity in the market place for homes that are sililar. Looking at "active" properties (those currently for sale) allows uas to determine if the price we recommend is competitive, i.e., does your home look more attractive to potential buyers because it is priced lower. Looking at "expired" properties allows us to inform the seller of price ranges where others have tried to sell and have not been successful for one reason or another.

As a realtor, I would update the CMA at least on a monthly basis to support potential price changes due to sales since the original CMA date or others that have come on the market. This is vital if you want to remain as competitive as possible in trying to sell a property. Of course there are limits to price reductions from the sellers perspective which must be taken into account during this process and sometimes this leads to a listing going expired.

If you were to sell (obtain a completed offer to purchase) your home for more than it is eventually worth from an appraiser's perspective. One, the contract may fall through because of the buyers inability to get a mortgage. Two, a completed sale would be dependent on one of two actions; first, the seller might come up with the difference to fullfill the contract and get the mortgage, and second, the seller might have to lower the price to support the appraisal. This has happened to me in the past and it comes as a shock.

Basically I agree with the others who have commented on this question before but I wanted to put a slightly different spin on the answer. Basically, you are the one who sets the price, that is not the realtors job, we can only advise. Setting it at the appraised value is a sound suggestion and an excellent catch on you part. Letting the buyers know this is another suggestion that you might want to consider. If getting the house sold is your main criteria than I would follow this route. Stick to your guns.

Hi Paige,

A CMA is reports of homes that are comparable to a subject property pulled by a real estate agent. Data that is taken into consideration and is strongly examined when determining a comparable home include: Location, Size, Number of Bedrooms, Bathrooms and the Condition and Age. Some secondary data that is examined is the Days on Market and Functional or Material Defects. After closely examining the last 3 months of activity of these homes which include homes currently For Sale, Pending a Sale or have Sold, a “Fair Market Value” of the subject property has been determined and can be found within this report.

An appraisal is similar but doesn’t include comparable properties for sale or pending, and is done by a licensed appraiser. They also have formulas they use for features such as garages, finished basements…things like that. The appraisal purpose is to make sure the property is being sold for what the purchase price is, as it protects the institution lending on it.

Best of Luck!

~M

Yes, a lender will require an appraisal, before loaning money. And if the appraisal comes in dramatically lower than the loan, there could (would) be a large problem, unless the buyer is putting down a large downpayment, enough to cover the risk for the lender.

A competitive market analysis (often called a CMA) created for today's market, shouldn't be using comps that are over or near a year old. When possible, they should be using comparables that are less than 90 days old. CMA's are often more in touch with what people are paying and are willing to pay in today's market.

That being said, it appears that you are fairly in touch with the true market value of your home. If you really feel that the CMA is 50-100K over value, don't allow your realtor or anyone else, to force you to overprice your home. Insist that they list it for the value you believe in, and perhaps that will make you one of the few "reasonably priced" homes on the market, and will cause you to be under contract quickly.