In preparing a Comparative Market Analysis (CMA) a Realtor or an appraiser determines a property’s value based on recent sales of similar properties in the local market, local being key. A similar property in Ann Arbor may be valued considerably higher to one in Manchester and considerably lower to one in California. Factors considered are location, size, condition, age, number of bedrooms and bathrooms, and other features, upgrades, and amenities (or lack). One of the reasons a market value estimate provided by an on-line estimator is notoriously often inaccurate is the inability to include condition and possible amenities. As a glaring example, the Zestimate on the house of Zillow’s CEO was 1.75 million, which was posted on the property’s listing, but the house sold for 40% below Zillow’s “estimate"; thus, having a local Realtor prepare a CMA is preferable and most agents will provide one for free.
The goal of a CMA is to determine the market value of a property by comparing it to recently sold properties that are similar in characteristics, for ulitimately the market value is what a buyer is willing to pay for the property; an underpriced home isn’t desirable for a seller when buyers would have been willing to pay more, and an overpriced property serves to sell other similar but properly priced properties, causing the overpriced property to languish on the market while the owner continues to make mortgage payments. A buyer’s agent should help a potential buyer compare property values before making an offer. A seller’s agent should advise a seller on cost effective improvements to the property that will increase its value and get it sold quickly.
An appraisal is conducted by a licensed appraiser, who charges a fee. Appraisals are seldom used to determine the value of residential properties for listing purposes, but a homeowner can request one instead of or in addition to a Realtor’s CMA; and for particularly unique properties, a Realtor may recommend an appraisal. Also, a lender may (and usually does) require an appraisal before approving the full mortgage amount for residential loans. The contract presented to and accepted by the buyer determines what is or may be done in the event of an appraisal falling below the buyer’s offered price. (A cash offer does not require an appraisal.) For a buyer, the savvy agent helps the buyer formulate an offer that anticipates such a scenario. A savvy Realtor will and all agents should explain to their sellers the potential consequences of an offer as written.
An appraisal is generally conducted for actual or anticipated commercial properties and will likely consider local zoning regulations or restrictions. An appraisal is also used for legal considerations such as estate planning, property tax assessments, divorce settlements, and insurance claims. An appraisal may not be any more accurate than a Realtor’s CMA but is much more accepted for legal purposes even though one appraiser’s estimate may be higher or lower than another’s. That’s one of the reasons in divorce settlements and other situations, each party will request a separate appraisal to protect his (or her or their) interest. It is why I always work to get a lender to use a local appraiser who has more experience and better understanding of the local market, for an appraiser from Toledo may well undervalue a home in Ann Arbor. And it is why, when I’ve got an offer for my seller, I go to the house ahead of the lender’s appraiser to make sure the property still looks its best.
So, to get an accurate listing price (which may determine whether you want to sell at all or where or what to buy going forward), consult with a licensed real estate sales agent. A local Realtor knows the local market and can accurately price your property in comparison to other like properties. The Realtor should be able to also advise, as I do, on particular tweaks to increase the value of your property to a pool of buyers. Call me for a referral to a Realtor in your area or to discuss with me your property in or near Washtenaw County.