April 21, 2016
How Much is This Home Worth?
CMA vs Appraisal vs Assessment
How much is my home worth? Maybe you don’t own a home yet, in which case you might ask yourself if the home you are buying is worth what you offered to pay? These are very good questions.
There are three terms you will likely hear from your REALTOR® and your lender: assessment, appraisal and CMA (competitive or comparative market analysis).
The assessment is a valuation the county or city does every two years on each property. This value is then used in conjunction with various city, county, school and other jurisdiction taxing districts and a variable rollback figure to determine the property tax for that real estate. Don’t worry if this makes no sense – property taxes are very confusing, especially in Iowa where we pay them about 18 months in arrears. However, while it may be tempting to look at the assessment and think that’s what the value of a home is, remember, that assessment may be as many as two years old.
That is where your Realtor’s comparative/competitive market analysis (CMA) comes in. If you are getting ready to sell your home your Realtor will perform a CMA to help you understand what the current market value is for your home. (A lot of people think that real estate agents price homes. We don’t; the market does.) Likewise, if you are getting ready to buy a home you can ask your Realtor to perform a CMA so that you have a good idea of whether the home is well priced. When your Realtor does this she or he will look at homes that are similar in age, style, location and features to the subject property (the home you are about to sell or buy) that have sold within the past three months. (Depending on the time of year, or the peculiarities of a specific home we might have to stretch this time frame somewhat, but three months is ideal.) We may also look at what a home’s current competition is among other homes that are currently listed. All this data is analyzed together with our professional opinion and experience with the current market to help you understand the value of a property.
So let’s say that you have an accepted offer on a specific property. Chances are good you are getting a mortgage to buy the home. This brings us to an appraisal. An appraisal is like a CMA on steroids. Your mortgage lender will arrange for this work to be done on your behalf. The appraiser, who is certified and licensed, will do a deep dive into the nitty gritty details of the subject property and comparative properties that have sold within the past three months. The value the appraiser assigns the property is used by the bank in part to ensure their decision to lend you purchase money is a good investment.
As always, ask your REALTOR® to explain the process to you if it still isn’t clear. Buying and selling a home is a Big Deal and you may be brand new at this, or only had this experience once or twice with lots of time in between. We always welcome questions!