Where a CMA Departs From the Evidence, and What It Costs
Market analysis receives little attention in the pre-licensing education most agents complete, and pricing is generally learned by observing the agents in the office. The result is a small number of practices that appear in CMAs in many offices, each of which moves the range away from the evidence in a way that is visible in the document, and each of which carries a cost that arrives on a schedule. They are worth naming, because each one can be found in the analysis in minutes.
A comparable pool assembled around a number. The seller’s figure, formed from attachment, renovation cost, a neighbor’s result, or what the seller needs to net, becomes the target, and the sales are chosen to reach it. The mark it leaves is a pool that leans one direction, with a closer or more similar sale missing.
Active listings in the evidence. An asking price is what a seller hopes for. A range with actives in the value column is anchored to other sellers’ hopes rather than to what buyers paid.
Sales that were not verified. A closed price is relied on without checking whether the sale was between unrelated parties on the open market, whether the seller paid concessions, whether the financing was ordinary, or whether the property at the time of sale was the property the record describes today.
Size figures used without checking the source. The subject or a comparable is compared at a square footage taken from a single record, with no note of its source or of what it includes, such as finished basement area, and the comparison is off by whatever the difference turns out to be.
Sales from a different market. A sale from twelve months ago in a market that has moved, or a sale from across a boundary that separates two market areas, is used as though it were current and local.
Dissimilar properties compared without adjustment. The larger, newer, or better-sited sale is treated as equivalent to the subject, and the range is wrong by the amount of the difference.
What the departures do to the numbers
Each departure generally moves the range by an amount that can be measured, usually in a predictable direction.
A seller expects $600,000 for a 2,200-square-foot colonial. Three sales at $589,000, $605,000 and $612,000 are selected, each of them larger or more recently updated than the subject. A 2,150-square-foot colonial two streets away, in comparable condition, closed six weeks ago at $548,000 and does not appear. The three selected sales point toward $600,000 only because each is superior to the subject; adjusted for those differences, and with the closer sale restored, the evidence supports a range of roughly $548,000 to $565,000. The missing sale is the mark.
A comparable recorded in the MLS at 2,300 square feet included 500 square feet of finished basement; its above-grade area is 1,800 square feet, against the subject’s 1,850. Read at the MLS figure, the sale appears 450 square feet larger than the subject and is adjusted downward. In a market where size differences of this kind are supported at $60 a square foot, that is $27,000 subtracted from a sale that called for an upward adjustment of $3,000. The indication from that one sale moves by $30,000.
Three active listings at $575,000, $585,000 and $599,000, averaged with three closed sales at $520,000, $528,000 and $535,000, produce a center of $557,000. The closed sales alone center near $528,000. The difference of roughly $29,000 is the amount by which other sellers’ hopes have been entered as evidence.
What it costs
The cost of each follows the same course. For a listing priced above the supported range, the first two weeks on market are generally the period of highest buyer attention; buyers who have been watching the market generally evaluate a new listing quickly and either act or move on. When the price does not reflect the market, many move on, days on market accumulate, and a later reduction, even one that reaches the right level, can suggest to the remaining buyers that something may be wrong. Negotiating position erodes, and the seller’s confidence in the office erodes with it. For a listing priced below the range, the seller receives less than the market would have paid, unless the pricing was a deliberate strategy to draw multiple offers, agreed with the seller in advance. For a buyer client whose offer exceeds what the sales support, the price may not be supported when the property is appraised, which can leave a choice among paying the difference, renegotiating, and withdrawing.
The course of an overpriced listing can be followed in figures. A property supported between $505,000 and $520,000 enters the market at $549,000. In its first two weeks it does not go under contract. At day 45 the price is reduced to $529,000, and at day 75 to $515,000, where it draws an offer and closes at $508,000, about four months after listing. Entered at $519,000, the same property would have met the market when buyer attention was highest, with a reasonable prospect of a price near the top of the range. The cost is the difference in price, plus roughly two additional months of mortgage interest, taxes, insurance and utilities, which at $3,400 a month is about $6,800, plus a listing history that shows two reductions to any buyer who looks.
How it applies. Each practice leaves a mark on the CMA itself, and the marks are what the analysis is checked for before it is presented: a pool that leans, actives in the value column, sales with nothing known about them beyond the price, square footage with no source, sales from another time or another market, a grid with no adjustments. The office standard is what those marks are measured against.