Real estate licensees prepare comparative market analyses (CMAs) in the normal course of business to assist sellers in determining the value of their property and establishing an appropriate listing price. To prepare a CMA, a licensee first has to gather the appropriate information on the subject property. This includes the location of the property, features of the neighborhood, square footage of the home, acreage, year of construction and renovations, number of bedrooms and bathrooms, and any additional features or amenities such as a swimming pool.
After gathering the appropriate information on the property, the licensee will want to find and select similar properties for comparison.
Current property listings are a good source of information on the pricing of similar properties. Comparing the common elements of similar properties and their listing prices provides a basis for a competitive listing price for the subject property. MLS listings are a good source for detailed information.
Recently sold properties and those with pending contracts indicate market values for similar properties, what buyers are willing to pay, and how long the properties were listed before selling.
Properties whose listings have expired without a sale provide valuable information about appropriate pricing. Listings often expire without a sale because the listing price is too high. A number of recently expired listings is a good indicator that the market trend is changing and market values are decreasing.
In searching for similar properties, the licensee should use the information gathered on the subject at the beginning of the CMA preparation– location, size, number of rooms, age, and additional features– and look for other properties with attributes as similar as possible to those of the subject property. Any differences can be adjusted when determining value in the same manner as with the sales comparison approach discussed earlier.
Computer- generated CMAs
CMA software allows licensees to create CMAs and listing presentations quickly and easily. Although a few online programs are available for homeowners themselves to fill out a form to gather data on the home, those programs may not be as accurate as the more robust programs available to licensees through REALTOR® associations. These programs still require the licensee’s knowledge in thoroughly gathering the appropriate data, entering the data into the program, and letting the program organize the data into the CMA presentation.
Automated valuation models (AVM)
An automated valuation model (AVM) is a service that combines mathematical modeling with databases of existing properties and transactions to calculate property values. Most AVMs compare the values of similar properties at the same point in time and work best in areas where the homes are alike rather than in areas where the homes are more customized and dissimilar. The service is available to real estate licensees, mortgage lenders, and major financial institutions.
AVM reports can be obtained in seconds by lenders and licensees to generate a price estimate and typically include the tax assessor’s value, the property’s sales history, and comparables’ sales history. They are quicker than appraisals, cost less, and remove subjectivity from the valuation process. What they do not include is the property’s condition when determining its value, nor do they include measurements, photographs, and other information included in an appraisal. Consequently, they do not qualify as appraisals and do not comply with USPAP standards. AVM services are available online.