What’s a CMA? How an agent could cost you THOUSANDS

The amount of agents in real estate that don’t know how to create or use a CMA is absolutely astounding and irresponsible. CMA stands for “Comparative Market Analysis,” and is the one of the most accurate ways to find appropriate home-value using market information.

Having the ability to create an accurate CMA is among the MOST important skills an agent has.  How could an agent do the best job possible if they don’t have an informed market-value of a property? They absolutely can’t and it could cost you THOUSANDS of dollars. Not to mention, the agent would be getting PAID to cost you money. 

There are 3 main steps to creating a Comparative Market Analysis:

1. Find properties most comparable to subject-property

2. Adjust value of comparable-properties

3. Analyze and apply data

Finding the BEST comparable-properties that RECENTLY sold is imperative to creating an accurate CMA.  Some important factors to consider when finding comparable-properties are: Housing-type, Construction, Square-footage, Floor-count, Neighborhood, Zip code and style. Choosing invalid comparable-properties is where most agents go wrong and would be the first area to look when questioning/contesting a CMA.  

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The next step is adjusting the features/value of the comparable properties to match the subject property. In the sample above, you’ll see the feature differences and their attached values. We’re adjusting the comparable property’s SOLD-PRICE. So if the comparable is better, that means it would sell for more.  Thus, you subtract monetary-value when the comparable has a superior feature and vice versa. 

In the sample above you see “-$2500” for a fireplace. Since the subject-property doesn’t have a fireplace, you’d SUBTRACT that value from the sold-price of the comparable property. The comparable was better, therefore we need to subtract from the sold-price of the comparable. You’ll also see “+$4000” for no granite/marble. Since the subject-property has superior countertops, we would ADD value to the sold-price of the comparable. It sounds confusing, but it’s relatively simple.

Finally, we need to extrapolate an analysis based on the data:

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From a listing agents point of view, you’d be trying to find the best listing price. Listing price is NOT the sold price. It’s the starting point.

The better the listing-price —-> the more buyers interested

The more buyers interested —-> the higher the sold-price will be

Looking at the data above, the average value would be around $303k. The fact that the average amount of time on the market is 17 days (relatively high for hot market), this would lead me to suggest bringing down the listing price to generate more interest. Another reason I’d want to bring down the price, is the fact that we’re floating just above the $300k mark. Floating above a popular search-range will cut down exposure (i.e: listing would NOT appear on a search for houses $200k-$300k if listed at $302k). Almost all buyers have some wiggle room on their max.  It’s very common for buyers to go well over their initial max. So I’d suggest listing this property at $299,999 and expect it to sell for around $305k (most likely more) within 2 weeks on the market. 

There are MANY other factors that would influence a listing price, but that’ll come in a future article.

From a buyers point of view, we’d have a really good idea of the home’s worth. This subject-property was actually wildly overvalued. It was listed for $330k and was on its 30th day on the market (WAY too long in a hot market). At this point, the seller should know they need to come down on asking price, but optimism for an accurate offer being accepted would be pretty low.

Offer advice is where things get a LOT more opinionated. My offer advice to the buyers would be based on their love of the home:

(These are just offer SUGGESTIONS. All buyers are free to submit any offer amount they want and agents are REQUIRED to submit said offers.)

We could live here” – offer $300k

We like it” –  offer $303k

We love it” – offer $307k

We REALLY love it” – offer $311k

We MUST HAVE IT!!!” – offer $315k and let them know this is my absolute max suggestion.

Hypothetical scenario: You offer the $330k asking price because your agent didn’t run an accurate CMA. You deposit escrow ($3300 or more), pay for inspection ($300), get finance approval, and pay for appraisal ($400). The appraisal only comes in at only $303k ($27k less than offer), but the seller won’t budge in negotiations. Another big whoopsie is that your agent forgot to check the box and add an “appraisal contingency” to the offer! Which means if you terminate the contract now, you lose the escrow deposit! Since appraisal came in way under offer, the mortgage company lowers funds provided. You now have to pay $15k cash to make up the difference… if you even have the cash to do so. 

Your main options would be:

 -cancel and be out the $4k you paid to escrow, inspection and deposit

 -make up the finance difference with cash and wildly overpay for the home

 -hire an attorney and hope the fees don’t exceed the escrow deposit (they probably will)

*All options come with disdain of your agent for sucking at their job and costing you a BUNCH of money*

This scenario is an absolute nightmare but it happens more often than you’d think. The moral of this article is to vet your agent and make sure they know what the HELL they’re doing. If they can’t run an accurate CMA… find a different agent. If they don’t know what a CMA is… RUN!!!!

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