Both Realtors and licensed residential appraisers access data from the multiple listing service to use for valuation purposes, so why aren’t their products the same? The essential difference is this: An appraisal is usually looking backwards, while a Realtor’s Comparative Market Analysis (CMA) looks ahead.
Key to an appraisal is its purpose, and the first question an appraiser will ask is the purpose of the appraisal. Is it for estate valuation, insurance purposes, or market value, usually for a loan? The appraisal amount will change, depending on the purpose. While it’s true the purpose can be for resale, few are willing to pay the $500 upfront charge. By and large, though, an appraisal correlates to an existing circumstance rather than a future event.
A CMA, on the other hand, has one purpose—to sell the home at some future point. Pricing a home to sell is a different exercise than determining market value. That’s why appraisals sometimes don’t support homes selling for thousands of dollars more than comparable sales suggest, even though a ready, willing, and able buyer and seller, not acting under duress, agreed to a sales price.
How do we price a home to sell? First, we use comparable sales (comps), just as appraisers do in order to establish an historical baseline. Not only should good comp be in the same area as the subject property, but it ought to have occurred within the last year (six months is better) and be similar in style, age, condition, and type (i.e., traditional sale, foreclosure, or short sale). When you specialize in such areas as Little Italy, Gaslamp, and the Marina District, locating good comps is tricky and requires market experience.
But active listings are also a critical part of the mix, not just in those neighborhoods, but in Birdrock, Mission Hills, Bankers’ Hill, and Bay Park communities where we also work. Active listings compete with yours, so we select those most comparable—difficult at times, since homes in those areas are unique and not “cookie-cutter” houses. Pending sales also weigh in, because these demonstrate a price point at which an accepted offer occurred, even if we don’t know the accepted price.
After carefully analyzing comparable sales along with both active and under-contract listings, the most critical element of all comes into play: The sellers’ personal goal. We will have derived a low-to-high price range, but the sellers’ needs determine the final listing price. Are they trading up or down, therefore needing a new home? Are they relocating for a new job, or is the property a short sale?
Whatever the sellers’ motivation, the sale of the home is the key to making a personal transition happen. It’s not just the detailed data that determines pricing, it’s the expertise in analyzing the figures and teaming with the sellers to bring the highest possible price in the time frame they need.
Give us a call or send an email if you would like more information! We look forward to hearing from you.