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I haven't read all the posts, so sorry if this is a repeat. Both are opinions. An appraisal is an opinion of value based on recent sales. A CMA is an opinion of price based on current market conditions. I would go with the HIGHER of the two opinions. You can always reduce the asking price, but it creates suspicion if you raise it.
Last edited by TampaKaren; 10-23-2007 at 08:49 AM..
Reason: OMG, I goofed! Changed lower to higher...
Ask both or research to see what they used for their numbers. Its ultimately up to the seller to set the price. Everyone has given some good advise. Look at when you need to move to see how agressive you need to be. PRICED below market/Appraisal value is good thing to advertize. Set it at a price that allows you to be compeditive with others in the market, but allows you room to negotiate or counter offer. CMAs are usually what is going on in your market. Hilight the good points. Good Luck
Shelly, you may very well do a pretty good job as a Realtor. But what you wrote was nonsense. Trying to compare a CMA to an appraisal is absurd. And any appraiser who does not look at current trends at current pricing of listings, at pending sales, at market conditions external to the subject is not an appraiser and should lose their license. Should you try to use all the tools available to develop a listing price? Absolutely. But to say "An appraisal in residential real estate is looking at sold comparables. they do not look at the current competition." is not only nonsense but it is misleading. If that is the kind of appraiser you are using, find someone better.
I am a member of a group of appraisers nationwide that are committed to ethical appraisal practice. I am also one of the founding partners of the www. mortgage fraud watchlist. org. I am part of a nationwide peer review service that assists appraisers when they are being brought before the appraisal boards. If you need the services of an appraiser, let me know and I can locate one near you that does their job, and does it with ethics and integrity.
A CMA is a marketing tool, not a valuation, and while it is useful to assist in determining a listing price, it does not necessarily produce credible results. A properly prepared CMA will get the house sold and will inform the buyer/seller as to what it should bring. A properly prepared appraisal can be taken to the bank.
A CMA is a marketing tool, not a valuation, and while it is useful to assist in determining a listing price, it does not necessarily produce credible results. A properly prepared CMA will get the house sold and will inform the buyer/seller as to what it should bring. A properly prepared appraisal can be taken to the bank.
Not to mention that an appraiser has no dog in the pricing fight. An appraiser collects a fee for his valuation service. A real estate agent is entirely invested in pricing --- some will price too low for a sure, quick sale (and faster collection of a commission), some will list high to maximize the amount of the commission, some are ethical, experienced and competent and worry only about maximizing their seller's net while minimizing days on the market. I've dealt with them all.
Appraisers routinely analyze current market conditions --- especially important now that some markets are experiencing declines and slowdowns. While closed sales are imperative to the report, pendings are prized data --- as well as actives which illustrate the subject property's market competition. Even if pendings and actives don't show up on the grid, it's incomprehensible that the appraiser hasn't analyzed the overall market.
Goodpasture is right --- examine the industry-specific educational requirements of real estate agents vs. appraisers. Then examine the motivations affecting bias --- appraisers = flat fee payable regardless of valuation, whether opinion of value is high or low; realtor = percentage of sales price payable only upon closing.
Goodpasture knows his business. And that business is appraising properties. His job is to give the lender assurance that there is enough collateral for the loan.
But he is not a marketer. I routinely go to list houses and tell the seller that their recent appraisal is not the price at which we should list the home. I occasionally even list appraiser owned properties and have the same discussion.
In this particular case however, the appraisal and the CMA are close. In relo deals we often have 2 and sometimes 3 seperate appraisals and a CMA. NOT ONE OF THEM EVER PRICES THE HOMES EXACTLY THE SAME. So obviously there isn't one fixed price for any home.
The real value of a home by definition is the the price that a willing seller and a willing buyer agree upon in an arms length transaction. That is the value, no matter what any agent or appraiser says.
Your job as a seller is to try to hit that number as closely as possible without leaving too much money on the table. In a falling market that is difficult. If you end up chasing the price down you will leave a lot of money on the table. If you underprice it, you will only leave the amount of money on the table by which you underpriced it. You need to think long and hard about it before deciding on a price.
Goodpasture- I don't care what the definition says. My CMA's have Active, Pending, and Sold properties on them. You were right about the fact that the CMA or Appraisal is only good as the preparer but I doubt there are many appraisers in my market who can walk through a house (in my market) and predict what it will sell for any closer than I can. That, sir, is why my CMA is better than any appraisal to predict what price the house should be listed at to sell within 90 days.
That was an excellent point made that an appraisal is meant to determine value whereas a CMA is meant to price a property to sell within an average market time. I'm sure we are both very good at what we do but they are slightly different objectives. I also believe, for that reason, that a good CMA is better for pricing a property to sell however if done correctly the CMA and the appraisal should be close.
To the seller that said agents have a dog in the fight so the appraisal is better:
You're right we do have a dog in the fight. If I dont' price a property correctly I've either cost my seller money by underpricing or I've cost myself money by overpricing (it won't sell). I give a range, and the seller picks their own price from the range or lower if they need a fast sale. I work hard to price homes correctly to maximize profit while still meeting my sellers needs for selling by the specified date. I believe you are referring to agents who "buy" listings by overpricing and I can't stand that either.
Last edited by Brandon Hoffman; 11-06-2007 at 12:46 AM..
The appraiser made some great points, you have to admit they are more educated in the valuation process than we. There's a reason I always recommend a seller get an appraisal.
Goodpasture, How much emphasis do you put on active listings when preparing an appraisal?
In the past few years, I've noticed appraisals are usually above or below what a home will sell for, they tend to "smooth" the market and slow the ups and downs (more the ups) In 2005, I saw many appraisals that didn't support the value that the buyer was willing to pay, either the seller had to come down in price, or the buyer had to come in with cash, I saw many buyers come with extra cash! In 2006 when the market wasn't moving quickly up or down, and there were plenty of sold comps, appraisals came in pretty dead on. Now that the market is sliding, I now see appraisals coming in higher than what a home can sell for.
FROM WHAT I'VE SEEN, appraisals put much more emphasis on the past, while CMA's put more emphasis on the present and future. When I do a CMA, I just put myself in the buyer's shoes, what can I buy right now and for how much, and what does the market look like in the immediate future...will priced fall...will they stay the same...will they go down. And typically buyers don't limit their buying criteria to 1 or 2 square miles, appraisers by a standard can only use homes in the immediate area...correct?
Both are valid opinions of value. The only way to choose as a seller is to look at the comps yourself, see what you think is really a comp, then take into consideration the market. The only two things I look at are Inventory and Demand (sales). I know in our market the inventory is still 4 times as high as it should be, and our sales just took a 400 sales a month hair cut.
FROM WHAT I'VE SEEN, appraisals put much more emphasis on the past, while CMA's put more emphasis on the present and future. When I do a CMA, I just put myself in the buyer's shoes, what can I buy right now and for how much, and what does the market look like in the immediate future...will priced fall...will they stay the same...will they go down. And typically buyers don't limit their buying criteria to 1 or 2 square miles, appraisers by a standard can only use homes in the immediate area...correct?
Ever find that line in an appraisal where the words "typically motivated buyers and sellers" appear? Of course we put ourselves in the buyers' shoes --- that's our job. The emphasis on the "past" is not ours so much as it is the measure of proof we have to meet for the underwriter. Closed sales are the proof, actives and pendings are more indicators of pricing trends. Underwriters, especially now, put more emphasis on solid, tangible proof of what a market is doing in making their decisions.
As for "market area" --- we don't have a "standard" or an "immediate area" from which to choose comps. The market area can be as small as a particular phase of a development to as large as a neighboring state. If there are ample qualified sales in a particular existing subdivison, why would we go outside that subdivision for comps (that's what the underwriter, USPAP and our state boards will want to know too)? In contrast, if I'm a wealthy, big-spending Detroit auto executive looking for a 30,000 square foot mansion on 200 acres, will I look throughout Michigan? Will I look in Illinois? Probably so.
I agree closed sales are PROOF and actives and pendings are only indicators. And when I sell a home, I have to look at the indicators and make an educated judgement on what is more of a factor on current sales price.
I think underwriters have always put their only emphasis on proof, thats why you never see an active listing in an appraisal, that would be ludicrous. But using a sold comp from 5 months ago, when all the neighbors have now lowered their prices to below that sold comp, because of a bad market, would be ludicrous in determining what price to list at today.
I think I just forgot what about we were debating? Whether to use CMA's or appraisals to determine price? I don't think there is any one answer that works in every situation, just like most things in Real Estate.
Appraisers are licensed to perform appraisals, Realtors are not appraisers, but they have a great deal of insight into the market. Can you wait the market out, by getting a second mortgage, or HELOC? Your property will only sell for what the market will bear. Have there been a lot of foreclosures or FSBO in your area, if so, that will bring house prices down unfortunately. If you really need to sell, advertise the property as priced below appraisal, and try Craigslist too.
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