One of your primary jobs as a Real Estate agent is to assess the value of property for your clients. Arriving at an ideal price is hardly an outcome of guesswork. Skilled Agents recommend purchase or sales prices only after a carefully considered review of the property’s condition, location, structure, amenities, and functionality, all tempered by the realities of regional competition and the economic environment.

Pricing Approaches
The real estate world relies on three basic approaches to property valuation:

• Appraisal. The vast majority of prospective property purchasers seek financing from a bank or financial institution. These financial entities require an appraisal in order to certify the value of the purchased property and to ensure that the funds being lent cover a certain percentage of the real value of the property as assessed by an impartial third party and not a percentage of some pie-in-the-sky figure set by an aggressive Seller or Agent. An appraisal analyzes and documents the condition and attributes of a property and analyzes its value through a process that usually involves comparing the property with sales of comparable properties in the market area.
  
  Appraisers arrive at a home’s value by issuing deductions and credits for features the home either has or doesn’t have when compared to similar properties. For example, if the subject home has a fireplace and comparable homes don’t, the home’s value is bumped up by $2,500 to $3,500.
  
  Learn the values an appraiser is likely to either credit or debit to a property in your area based on the amenities it has or doesn’t have. Talk with appraisers in your area. Learn how they judge the worth of a fireplace, an extra bedroom, hardwood floors, an extra-large lot, an extra garage, upgraded finish work, landscaping, a sprinkler system, a deck, a hot tub, a spa bathtub, or other amenities or features. The values vary greatly from one market area to another. I suggest that you compile a list of the items that affect pricing in your area, along with the credits or debits that accompany each entry. The information will arm you with your own valuation resource and allow you to offer valuable counsel to your Buyers and Sellers.
  
• Broker price opinion, or BPO. A BPO is a property value assessment, which is increasingly required by relocation companies that help employees of companies transfer to new communities. Each relocation company has its own BPO form and process to complete, but nearly all aim to achieve the same objective: To understand the value of the employee’s currently owned property, the likely sales time frame, and the probability of a sale at a certain price. Based on the BPO, an employer can craft a moving package offer that is based on a sound value opinion. The last thing an employer wants is to offer a transferring employee an unreasonably optimistic buyout offer that leaves the company saddled with an overpriced home.
  
• Competitive market analysis, or CMA. While appraisals come into play in most real estate deals, and broker price opinions come into play some real estate deals, competitive market analyses are fundamental to all professionally Realtor listed real estate deals. Agents that are skilled at conducting CMAs stand head-and-shoulders above their competitors, both in terms of client confidence and in terms of sales success.

What is a CMA?
CMA is shorthand for competitive market analysis, a market review that studies the prices of sold properties, pending sales, and active and expired listings to arrive at the current fair market value for a given property.

The key word in the CMA definition, and in fact in any valuation, is “current.” Whether you analyze or interpret the value of a property using your own CMA, a broker price opinion, or a third-party appraisal, you’re assessing the current value of the property. In other words, you’re looking at what it’s worth right now…today.

Every time that you use CMA results to counsel a Seller or Buyer on price, take pains to explain that the evaluation is based on today’s market conditions and today’s market timing, and that many factors could influence the value assessment either positively or negatively in the future.

Treat the CMA as a time-sensitive tool and preface its results accordingly. Too many consumers and even Agents are misled into believing that a pricing value opinion reflects the least a property will ever be worth, totally ignoring the possibility of market fluctuations that will impact price regardless of the assessment approach used to arrive at the valuation. For example, if you render a value opinion and then 30 days later the regional inventory of homes for sale explodes, you need to sharpen your pencil and start a new CMA, pronto. If you wait or if you stand pat based on an outdated analysis, the increased inventory of homes for sale could dramatically affect your Seller’s ability to compete at the previously established price.

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