Comparative Market Analysis vs. Property Appraisal: What’s the Difference?

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RECA Ask Charles bg

My real estate agent gave me a comparative market analysis when we set the listing price for my home, but now a buyer’s lender wants an appraisal done on the property. What’s the difference?

That’s a good question. There are some very important distinctions between a comparative market analysis (CMA) and an appraisal.

A CMA is a method of property valuation real estate professionals use to estimate the value of residential properties; a CMA provides a range of value. This helps sellers set a listing price for their property. CMAs examine the prices at which similar properties in the same area have recently sold.

A real estate appraisal, on the other hand, is a formal, impartial estimate or opinion of value, usually in writing, of a specific property, as of a specific date, which is supported by the presentation and analysis of relevant data pertinent to a property. Appraisals provide a defined value for the property, rather than a range as in a CMA.

Real estate appraisers in Alberta need a licence as an appraiser from the Real Estate Council of Alberta. They require special training and experience before they become full appraisers. Their methods for providing an appraisal go beyond using the sold prices of similar properties to arrive at an appropriate listing price.

When a real estate professional provides a CMA to a seller or potential seller, they need to ensure the seller understands the following: it hasn’t been prepared by a licensed real estate appraiser; it doesn’t comply with appraisal standards; no one should rely on it as an appraisal; and, it can’t be used for financing, civil proceedings, income tax purposes, or financial reporting purposes.

The only thing a CMA is supposed to be used for is to help set a listing price. That’s why a buyer’s lender may want to do an independent appraisal on a property. Simply put, the lender wants to make sure the property is worth what the buyer is paying for it. Just because other homes nearby have sold for a similar amount, it doesn’t mean a lender will be satisfied the home is worth what the buyer is paying for it.

If the buyer were to default on the mortgage and the property were to go into foreclosure, the lender wants to make sure it can recoup the money it has lent on the property. The lender will be more confident in its lending by reviewing an appraisal for the property.