A Matter of Price: The CMA VS The Appraisal
As a real estate professional, I have found that educating the public is a large part of my business. You may remember the catch-phrase used by The Men’s Warehouse clothing company; “Our best customer is an educated customer.” No truer words have been spoken when it comes to selling residential real estate. When I work with a buyer or seller who is aware of the market conditions, and understands the value of ‘doing things right from the beginning’, there tends to be a much smoother, and gratifying experience for all involved.
So why is it that some homes sit on the market and never sell (and current statistics indicate that 41% of the homes on the market in Southern Maryland will not sell), while others sell in a relatively short period of time? Two reasons; “sellability” and “Pricing”. When you make improvements to a home, like replacing the carpeting, freshening up the paint and sprucing up the landscaping, you are adding to the sellability, not to be confused with “Value”. The afore mentioned improvements do not create value. The second reason is “price”, and the biggest reason homes do not sell.
There is a common misconception about the difference between a Comparative Market Analysis, commonly known as a CMA, usually prepared by a licensed real estate agent, and an appraisal, which must be compiled by a licensed appraiser. Unfortunately, sellers will often times confuse market value with market price, which prompts unrealistic expectations of what their home will sell for.
Keeping in mind that ‘a home is worth only what a buyer is willing to pay for it’, it stands to reason that when supply outweighs demand there is more to chose from, putting pressure on pricing, and thus creating a buyers market. Maryland real estate cannot be lumped, as a whole, into one category. There are parts of it that are experiencing significant price pressure, while other areas, like Southern Maryland are seeing flat to only slightly negative appreciation.
The secret to pricing a home that will sell (here is the real tell-all) is to price it 2%-5% in front of the market comparisons in the direction of the trend. In an up trending market, you would price a home higher than the last home sold for, while in a down trending market, a home should be priced slightly lower that the last group of comparisons sold for. In Charles County, for example, recent home-sale statistics show the average ‘sold’ price was –1.44% over homes sold a year ago. If you want to sell your home under the current conditions, you would price it about 2% below the CMA recommended price for your property.
Often I will hear a seller say that “it appraised for more”…….And here is the reason for confusion; there are a number of reasons a seller will get an appraisal. It could be for a home equity line, a refi, a bridge loan, or an appraisal of resale. Each of these appraisals is compiled for different reasons, and is merely supporting documentation that is required by the bank to justify the loan they have made to the homeowner. It is not uncommon at all for three different appraisals to have three different values. Also, the typical comparison appraisal only uses 3 comparables, while a CMA generated by a real estate agent uses all of the comparables within the neighborhood, providing a larger picture of the market trend. Also, the information in a CMA and an appraisal is only good for 30 days. Don’t rely on the pricing opinion you received 3 months earlier, as it will have changed.
