What’s the difference?

By: Chelsie Cheesborough

When you begin to search for a Realtor, or real estate agent there is a good chance you don’t understand half the words they say. When they are explained, it almost seems that some of these words could be used interchangebly. The truth of the matter is, we know the difference, but are not very good at explaining it sometimes. Hopefully this helps with one of the most common misunderstandings.

Ever heard your Realtor or agent say the letters “CMA” or “appraisal”? These are two of the most misunderstood words of our industry. Believe me we have it more than pounded in during all of the training we do that there is a very distinct difference between the two. Agents are in no way shape or form allowed to say the price they suggest is an appraisal, and I will explain to you why they are not the same thing, and why this is such a big deal.

What is a “CMA”

 

I figured I will start with what we, as agents, are allowed to do. We are allowed to give you a Current Market Analysis (CMA). This in a sort is an educated guess on what your house is worth. I like to think of it as a hypothesis. So how do we come up with these numbers, and how do we determine what is a good price for your home?

The simple way for me to explain it is that we compare your property to those that have recently sold in your area. As stated in this article written by Diana Hill “ What other properties have sold for in your neighborhood, otherwise known as comps. You also need to consider expired and current listings. “ We will gather information from the past 6 months to a year on the market in your area, find houses that are comparable to yours (similar square footage, layout, beds and baths) take what they have sold, or did not sell for and use these to come up with a price for your home that we believe will sell in the current market of your area.

Yes you can put your two cents in, but just because you painted the living room does not mean that the price of your house will skyrocket. You have to keep in mind that we are the professionals, not that we don’t care about your oppinion. We just know what we are doing, and unless you would like your house to sit on the market and never sell, take what we say seriously, and know that we want your house to sell for as much as possible, just like you.

Why do I need an “appraisal” at the time of sale?
Didn’t my agent already compare my house with others? isn’t that a good enough estimate?

 

Simply answered, NO!
We are in no way shape or form licensed appraisers. We are agents for you in the real estate transaction. The appraiser’s job is there on behalf of the lender, more-so than the buyer or the seller. This explination from ask cfpb is really helpful: “An appraisal is a written document that shows an opinion of how much a property is worth…An appraisal helps assure you and your lender that the value of the property is based on facts, not just the seller’s opinion.”

It is important to have documents in everything real estate. That way the lender understnds why you need a loan of $200,000 rather than $100,000. If it were enough to have a CMA done to determine value of a home we would see a lot more price gauging from realtors who want to force the market up.

I know that there are questions left about this topic, so I will try to cover a couple of them. Please keep in mind that all situations are different and you should always contact your agent, or appraiser for more specific questions.

One of the most common concerns:
What if my house doesn’t appraise?
Simple answer is that the contract is then void. If a house does not appraise for the amount agreed on by the buyer and seller, it is then up to the buyer whether or not they want to continue. They then have the option to negotiate the price down to what the house appraised for, walk away, or pay the difference in cash.

Ultimately you want to do what you can to get as close to the appraisal price as you can as far as listing the home. The best way to do this is having your agent perform a CMA and show you the documentation that he/she used.

 

http://www.tradingacademy.com/lessons/article/understanding-cma-current-market-analysis-why-important/

http://www.consumerfinance.gov/askcfpb/167/what-is-an-appraisal.html