My New Outside Blog: Preparing a CMA - Is the Home Vanilla, Chocolate or a Swril?

Preparing a CMA - Is the Home Vanilla, Chocolate or a Swril?

 

Many CMAs prepared by Realtors value the property by the Average Price Per Square Foot Method.  The key word to focus on is AVERAGE.  This type of valuation assumes the home is average and just like the typical home found in the neighborhood/area. 

What if ...

  • The property has been highly remodeled?
  • The home backs/fronts a negative influence like a traffic carrier street?
  • The lot has a view amenity i.e. golf course, greenbelt, lake, heavy trees?
  • The home is a total redo?
  • A stigma like an unnatural death has occurred at the home?
  • Some improvements/quality added features are present.
  • The home has a pool, tennis courts.
  • The home is located in a specific school attendance area that is sought after?
  • And the list of what ifs goes on ...

As a certified real estate appraiser I have the opportunity to teach and one of my first classes begins with "Do Not Use the Price Per Square Foot Method".  The WHY to it's popularity is simple, it's easy.  Anyone who can do 3rd grade math can easily master how to use it.  You just add, divide and multiply.  As a professional we are called upon to give this very critical input to our clients - providing a realist and professional valuation of their home so they can make good business decisions.

To be convincing of why you should work with your clients on listing a home or assisting a buyer on what they should pay you need understand and utilize valuation with adjustments.  By adjusting the points of difference for varied characteristics a home has to offer you will be able to determine a realistic range of value that buyers will be willing to purchase the home.  A vanilla home is just good and plain, no toppings, well maintained.  A chocolate home is rich with amenities and updates, a swirl is a combination of some updates and original features.  All are great flavors and all have people that will love what that home has to offer.

Now add toppings and that costs more just like your home's value increases with added amenities like a swimming pool.  The next time you are preparing an analysis ask yourself what flavor is the home and how much would a buyer be willing to pay for each topping type. 

Keep in mind that "Price Cures All".  In our economy, the buyer may not want to pay for the Haagen Daz price tag but more on the Blue Bell scoop cost.  The value of the home needs to reflect what the buyers are purchasing.  Some of the topping may need to be tossed on top without charge to make a buyer select the home.  It all goes to understanding the market and individualizing your home valuation to know what cone will best fit your house.

Comment balloon 11 commentsConnie Goodrich • January 19 2011 04:49PM

Comments

Hi Connie, what a great way to explain how to do and make adjustments when doing a CMA.  By using different flavors of ice cream and toppings I think many agents will better understand.  Enjoy your evening!

Posted by Judith Parker, CRS, GRI, CMRS, Charlotte, NC (ProStead Realty) over 8 years ago

Most agents do not do adjustments.  I do BPOs and I do the adjustments.  Sometimes it is hard for me to know what value to put on the adjustments.

Posted by Pat Yoest, 702-521-1442 (Century 21 Aadvantage Gold, 702-719-2100) over 8 years ago

Thanks Connie.  The last 5 listing appointments I have been on have not been realistic about their price.  No matter how many of their objections were covered they had in their minds that their home was worth so much more than the market was telling them.  I'm going to list them when they expire!

Posted by 'The Diamond Group' 'A Cut Above The Rest', Lubbock Texas Real Estate (The Diamond Group @ Keller Williams) over 8 years ago

GOOD MORNING CONNIE!  Love the post!  I suggested it for a feature!  CMAs aren't always black and white - it involves many variables and price per square foot is just one of them! -- G

Posted by Gabrielle Kamahele Rhind, Broker/Owner (KGC Properties LLC, Tucson Property Management & Real Estate) over 8 years ago

Thanks all for your time to come visit my post and share comments.

Judith - always appreciate your comments .. I was a former teacher way back when and I know that when you visualize something it has more impact then just the facts.  Glad you liked my analogy.

Pat -Adjustments are just what buyers are willing to pay or not pay for varied traits of a home.  The amount of adjustment is just a mirror of the amount of credit a buyer will allocate - Example - 2 car vs 3 car garage - depends on the price range and how much more value the buyer gives in that price break. 

Elizabeth - I also am waiting on a few homes to expire, the owners felt that a buyer would pay more for their very special home.

Richard - thanks for the visit and I have enjoyed your posts!  This last year I pitched in a few times to assist with the Appraisal Company I founded that I turned over to my husband.  One of the associates had a death in the family and it put the flood of work way behind.  Other than that, I just 100% work on my real estate business.  It is just too hard to properly focus with other work distracting. 

Gabrielle & Richard - thanks to both for thinking my post worthy of a gold star .. appreciate the compliment. 

Gabrielle - I have suggested several of your posts and 3 got featured .. you do a great job on catching interest and the topics are current.

Appreciation to all!

Posted by Connie Goodrich, CRS ABR (McKinney Realtor)Texas (Keller Williams Realty) over 8 years ago

Hi Connie:

You are so right....there is a lot to take into consideration when doing a CMA.

Our only issue during these times, is whether an appraiser will take the same into consideration when there is a deal pending.

Posted by Toula Rosebrock, Broker/Sales Associate, Realtor, Lacey Township, (Diane Turton, Realtors, Forked River, NJ) over 8 years ago

Toula - or just the appraiser being considerate to do a professional and thoughtful report.  I find many slapping it together in order to move to another report, no thought whatsoever.

Posted by Connie Goodrich, CRS ABR (McKinney Realtor)Texas (Keller Williams Realty) over 8 years ago

Great post, loved it.  Too few are able or willing to adequately analyze the features or factors that require adjustment as to how much to adjust for. You are right, It is the amount a buyer will pay for that item or how much they will discount for it, but how does a person know what that magic # is?  I've been analyzing real estate for over 20 years as a appraiser & have sold quite a few homes as well & feel I have a pretty good handle on how to support the adjustments, but am looking into a great new addition to this analysis process.  The new process will use traditional methods togehter with running a statistical regression analysis on the selected data to show a dollar amount the various features & differences are going for. This will often, depending on the available data, allow increased support for the adjustments & an increase in accuracy.  I don't expect BPO providers to have this tool, as it costs too much to be cost effective for the typical BPO fee. It should also allow appraisers who use the tool to be faster & besides providing better more accurate estimates, pass a savings on to those who pay for the appraisals.  Best of luck to all.

Posted by Craig Chapman, The Value Guy (Call Realty / Access Appraisals) over 8 years ago

Excellent information Connie! Price is king and I share that a lot because no matter how good a house looks, you can't overprice in this market!

Posted by Karen Otto, Plano Home Staging, Dallas Home Staging, www.homes (Home Star Staging) over 8 years ago

Other than FSBO’s, I don’t know anyone out here who uses the square foot method.

Posted by Jim Frimmer, Realtor & CDPE, Mission Valley specialist (HomeSmart Realty West) over 8 years ago

Hey! What’s wrong with strawberry? J

Posted by Not a real person over 8 years ago

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