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CMA vs. Appraisal: The Difference and Why It Matters

The difference between a Comparative Market Analysis (CMA) and an appraisal may not seem important at first glance since both are used to determine property value. However, at closer inspection, this topic may prove critical to the sale of a property.

By definition, a CMA is a price estimation prepared by a licensed real estate broker that is valid right now, meaning at this very moment, and is a reference for buyers and sellers when deciding a list or offer price on a property. An appraisal, on the hand, is an unbiased opinion of property value by a licensed appraiser prepared for a fee and is valid up to six months.

About CMAs. CMAs are an indicator of a property's worth in today's marketplace based on recent sales data, usually properties that have sold over the last 3-6 months. Brokers typically compare the subject property with those most similar in terms of location, property type, size of lot and home, number of bedrooms and bathrooms, age, features, condition, etc., a technique which is commonly referred to as the sales comparison approach. Brokers also take into account properties currently listed for sale, number of days on market, any developments in the neighborhood among other considerations. Additional methods may be employed by a broker depending on the type of subject property and/or the needs of the client and the brokerage's policies.

About appraisals. In contrast, appraisers use three approaches for determining property value: sales comparison, income and replacement. Appraisals are usually completed for lenders to determine if a property will have enough equity for purposes of loaning money to the buyer. However, appraisals can also be done for any other reason a determination of value is needed or wanted as in the instances of estate planning, probate, divorce settlements, etc. For this reason, appraisers must follow strict licensing and industry guidelines as well as the Uniform Standards of Professional Appraisal Practices (USPAP). The USPAP was adopted by Congress in 1989 and is updated every two years so that appraisers have the information they need to deliver unbiased and thoughtful opinions of value. ​​​

Simply put, a CMA is a broker's attempt to establish a value in order to sell a property for the most money possible, or in the case of a property purchase, to determine if an offer is not above market value. An appraisal is a licensed appraiser’s opinion of fair market value and does not consider whether or not a property is worth its list price — only sold properties matter to an appraiser. Appraisals are considered the true valuation of a property according to the lender and will always take precedent over a CMA.

In cases when a property's appraised value is less than an agreed-upon contract price, the buyer and seller must come to terms as to how to handle the difference; otherwise, the contract will be terminated (unless the seller disputes the appraisal). Specifically, the buyer may pay the difference between the appraisal and contract price, the seller may come down on the price to match the appraised value, or a combination thereof. In the event the appraisal comes in for more than the contract price, the buyer and seller are not required to do anything. This means the buyer got a good deal on their purchase.

In a perfect world, appraisals and CMAs should point to the same or similar property valuation.

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