What is the process that appraisers and real estate agents utilize in preparing a Comparative Market Analysis or a CMA? I like to call my CMA’s a right price analysis, because a when a seller puts their home on the market at the right price and in move in condition it will sell quickly. A listing that is overpriced will sit on the market and it may not sell – in fact the statistics show that in order to sell an overpriced home, often the seller must do a number of price reductions which results in a lower final sales price or net to the seller than a home that was priced closer to the market value from the beginning of the process.
To begin the process of evaluating value, it is important to understand some economic principles and the concept of value and we’ll consider the theory of value before I get down to actually presenting the process of how an appraiser determines the value of a home and how to do a CMA.
Defining value can be complex depending upon the source one chooses, but most agree that value has the following characteristics:
- Demand – the need or desire for possession or ownership backed by the financial means to satisfy that need
- Utility – the capacity to satisfy human needs and desires
- Scarcity – a finite or limited supply
- Transferability – the relative ease with which ownership rights can be transferredThere are various forces at work that influence value.
Highest and Best Use is the most profitable single use to which a property can be adapted; is subject to change.
As an example, when North Hills developer John Kane decided to expand his mixed-use concept across Six Forks Road, five homes stood in the way.
The best deal went to Harold Dew, who bought his ranch in 2003 for $120,000. He sold it just a few years later to Kane Realty for $850,000.
Another economic principle of value is Substitution which states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable replacement. This is the basis for the Sales Comparison Approach in real property valuation. Substitution holds market value of real estate is influenced by the cost of acquiring a substitute or comparable property.
 Source N&O Mar 31, 2006