As part of the home buying process, your real estate agent
may create a comprehensive market analysis or CMA. Later, when you apply for a
mortgage, a bank appraisal is conducted by a licensed appraiser. Are CMAs and
appraisals the same thing?
While both CMAs and appraisals help determine a home's
market value, their purposes are not the same. The CMA is a sales tool to help
you find an offer price for the home you want to buy. The homes in the CMA
include the home you want to buy plus similar nearby homes. This helps you see
how the home you want compares to other homes so you have an idea what to
offer.
A real estate professional may prepare a CMA for their
sellers to help them choose a listing price. The CMA includes recently sold
homes and homes for sale in the seller's neighborhood that are most similar to
the seller's home in appearance, features, and general price range.
Although the CMA is used to help determine current market
value, the seller's home is typically not even featured in the CMA. The CMA is
merely a guide to help the seller learn what's happening in their local market,
so they can better understand where their home fits in term of price ranges,
based on location, features, size, condition and other factors.
The CMA offers the same advantages to you as a buyer. They
help you better understand the local market. You can expand the search and get
different results in a CMA simply by changing the zip code or the price range
or the number of bedrooms and baths.
Appraisals are all about risk retention for banks and their
customers. If the buyer is receiving financing through a bank, the bank will
order an appraisal.
Unlike the CMA, a bank appraisal is a professional
determination of a home's value. It's performed by a licensed appraiser, using
guidelines established by the Federal Housing Finance Agency, which regulates
federal housing loan guarantors such as FHA, VA and housing loan purchasers
Fannie Mae and Freddie Mac.
An appraisal is a comprehensive look at a home's location,
condition, and eligibility for federal guarantees. For example, the home you
want may have porch steps but no handrail. If you want to buy the home with an
FHA or VA-insured loan, your seller will have to repair or install a handrail.
The FHA or VA appraiser will look at the home a second time to make sure the
steps were made safe.
Appraisers use the same data in their market research to
find comparable homes as Realtors do. They are also members of the MLS, but
they have additional guidelines from the bank to follow to minimize risk to the
bank and to the borrower. If home prices are falling, the appraiser takes the
number of days a home has been on the market far more seriously.
When the appraisal is finished, the bank makes the decision
to fund the loan, or it may require the seller to fix certain items and show
proof that the repairs have been made before letting the loan proceed. If the
loan doesn't meet federal lending guidelines, the bank will decline the loan.
Despite stricter lending and appraisal standards, most
buyers' loan applications go through to closing. One reason the system works so
well is that real estate agents are preparing CMAs that are better tuned to
lending standards as well as market conditions. As a buyer, it's in your best
interest to understand how lenders approach risk and to learn what the market
is doing.
Simply put, you need both a CMA and an appraisal to
determine market value. A CMA helps you decide what you should offer the
seller. An appraisal determines what the lender is willing to lend to help you
purchase a home.
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