Depending on the condition of the real estate market, preparing a CMA for a listing appointment can be either a snap or it can cause you to go into a total breakdown.
The latter is an exaggeration, but when a market is in flux, a CMA can be challenging to put together.
In a market with rapidly rising home prices, you’ll find that recent home sale prices haven’t caught up to what is actually happening with current sales. In a declining market, the same is true, and you’ll run the risk of overstating market value.
In a nutshell, both transition markets present a conundrum for the listing agent because “… comparable properties reflect yesterday’s home sales rather than the present market value,” which is higher or lower “… than it was even a few weeks earlier,” suggests Carrie B. Reyes at Firsttuesday Journal.
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The CMA
For the benefit of the newbie, in a nutshell, compiling a CMA involves the following steps:
- Go through the MLS to find recently sold listings and gather three to five that most match the subject property in age, size, number of bedrooms and bathrooms, and lot size.
- In a normal market, you would choose comps that sold within the past six months. In a transitioning market, grab comps that have sold most recently.
- Typically, you would restrict your comps to within one mile of the subject property. Again, you may have to adjust this proximity outward in the current market.
Back in 2007, the experts at Fannie Mae put together a guide for appraisers entitled “Fannie Mae Addresses Declining Market Issues,” a copy of which can be found at AppraisalInstitute.org.
You’ll find that some of the information included addresses how to deal with a more rapidly declining market than we are experiencing right now, but there are other useful tidbits you can take from it as well.
Naturally, if this current market transition isn’t your first rodeo, you’ll sail through the market evaluation process with no problem. Less experienced agents, however, may find themselves in a panic or, worse, end up overvaluing their listings.
This is where a mentor would come in quite handy. Lacking such a goldmine of information, you may want to run your final analysis by your broker to ensure it fits current market conditions.
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