What Is A CMA?

CMA

This is the most commonly used of the three approaches in residential real estate.

Formula: Comparables plus or minus adjustments equals Appraised Value.

The property we are trying to determine the value of is called the subject property.

When using the comparable approach we start by establishing what the subject is and has. A two story home that has a 1,000 Sq Feet on the main floor, second floor and the basement, giving a total of 2,000 feet above grade and 1,000 below grade.

Then how many bedrooms, bathrooms… Then there are amenities, this is the tricky part for sellers. What may be an amenity to one person may not to another.

For example, being two doors from an elementary school is great if you have three elementary age children, but it doesn’t mean much to an empty nester. Same thing goes for a swimming pool, perfect for one and not the other.

The three main criteria an appraiser uses when comparing is

1. Date of the sale of the comparable. 6 months is as far as an appraiser likes to go back, then they will adjust for time. Then the market condition comes into play. Which way is the market going? Is there consideration for the season?
2. The proximity of the comparable to the subject. An appraiser doesn’t like to go more than a mile, however this is where local expertise comes into play. An appraiser will use natural boundaries, like I-215. If the subject property is within a few blocks of a highway typically they will not go on the other side even if it is within a mile.
3. Similarity of the comparable to the subject. Are they the same type of home? Two Story, Rambler, Tri-Level… Above grade footage to below grade footage. Comparing the location, for an example a property located on a busy street is hard to compare to a property two blocks away on the end of a Cul-de-Sac with a park in the back yard.

Once you have you accumulated your comparable sales then you need to go through the adjustment period.

***IMORTANT*** When comparing and adjusting. You never adjust the subject, you always adjust the comparable to be the same as the subject.

For an example if the subject is a 4 bedroom house and the comparable that sold had 5 bedrooms. Then you need to adjust the comparable down by a number that is pre-determined amount for a bedroom. Typically it is around $1,000. So you would subtract a $1,000 from the comparable to adjust it down to 4 bedrooms. Please note that the square footage is adjusted too. The same is true if the comparable had 3 bedrooms. You would add $1,000 to adjust the comparable from 3 bedrooms to 4.

This method is used all the way down the list of items to come up with an adjusted value. Here is an example of a CMA, the adjusted values are averaged and then that value is assigned to the subject.