The CMA: What a Connecticut Licensee May Prepare

Section objectives — Upon completion of this section, the learner will be able to:

1. Identify the parties and purposes for which a Connecticut licensee may prepare a comparative market analysis, the statement it carries, and what it may not be called or held out as.
2. Distinguish the pricing requests the office may fulfill from those it declines and refers.
3. Explain the elements of a written office pricing standard and prepare a CMA to it.

A Connecticut brokerage produces one document that states something about what a house is worth: the comparative market analysis. The line around that work is drawn by statute, by whom the CMA is prepared for and by the purpose for which it is requested, and the office decides, request by request, whether a request falls inside that line.

The comparative market analysis

A comparative market analysis is an analysis of closed sales, pending sales and active listings that a licensee prepares to support a list price recommendation for a seller or an offering position for a buyer. It produces a price range, and it is prepared in the ordinary course of listing, selling or buying.

The words themselves are regulated. In Connecticut, appraisal is reserved by statute to licensed and certified appraisers, and a licensee’s CMA is not described as an appraisal, in the document, in advertising or in conversation.

What the Connecticut statute provides

Connecticut’s real estate appraiser statute, Chapter 400g of the General Statutes, reserves the practice of appraisal to appraisers licensed or certified under that chapter. Section 20-526 lists the exceptions, and one of them is the provision that matters to a brokerage. It exempts a licensed real estate broker or real estate agent who estimates the value of real estate as part of a market analysis performed for the owner of the real estate, or the owner’s designee, on terms the owner and the licensee agree upon, for one of three purposes:

1. a prospective listing or sale of the real estate;
2. providing information to the seller or landlord under a listing agreement; or
3. providing information to a prospective buyer or tenant under a buyer or tenant agency agreement.

The same provision states that the estimate of value shall not be referred to or construed as an appraisal. Where the owner then signs a listing contract with the licensee who prepared the estimate, and the property is a building occupied or intended to be occupied by no more than four families, the statute credits any fee the owner paid for the estimate against the compensation due under the listing.

Three features of the provision govern office practice. The first is the party: the market analysis is performed for the owner, the owner’s designee, or a buyer or tenant the office represents under an agency agreement. The second is the purpose: a prospective listing or sale, or information under a listing or agency agreement. A document prepared for any other party or purpose, however it is labeled, is not covered by the exemption. The third is the label: the estimate is never referred to as an appraisal. The statute calls the licensee’s work an estimate of value; the office presents it as a price range and a list price recommendation and does not label it a value. The office meets that requirement in writing with a line at the foot of every CMA, reading in substance, “This is a market analysis prepared by a licensed real estate broker or real estate agent. It is not an appraisal and was not prepared by a licensed or certified appraiser.” The exact language is a matter for the office standard, and the same sentence appears on every CMA that leaves the office.

Requests outside the exemption

The purpose test is applied at intake, by asking what the document is for. Several purposes are recognizable at once, and for each of them the office declines the request and refers the party to a licensed or certified appraiser.

Litigation. A court proceeding over the ownership, division or damage to real property requires an opinion of value that can be entered into evidence. An attorney who asks an agent for “a letter with a number in it” is asking for something a licensee may not provide.

Divorce. The division of marital property is litigation or the settlement of it. A CMA prepared for one spouse is outside the exemption and places the office in the middle of a dispute it has no reason to enter.

Estate settlement. The value of real property at the date of death establishes the estate’s tax position and the heirs’ basis in the property. A value as of that date is outside the exemption. A CMA prepared for the executor who is about to list the house is a listing CMA and serves only that purpose.

Tax appeal. A property owner who contests an assessment before the board of assessment appeals, or in court, is contesting a valuation as of the assessment date. Whatever a board may accept, a document prepared for the appeal is outside the exemption.

Lending. A mortgage lender, whether making a purchase loan, a refinance or a home-equity loan, ordinarily obtains its own valuation, and a request for a valuation for a loan is outside the exemption, so the CMA is not provided as the basis of the loan.

Other purposes appear less often and fall on the same side of the line: a gift of real property, a partnership dissolution, a bankruptcy filing, a condemnation, a relocation buyout the employer’s program requires to be independently valued, and any situation in which a party intends to rely on the figure against someone else. The working test is whether the document is for a decision about listing or offering, or for a decision that someone else will be bound by. The first is the office’s work. The second is not.

The response at intake

The office’s response to a request outside the exemption is short. The agent explains that the purpose calls for a licensed or certified appraiser, that a licensee is not permitted to provide that document, and that the office can refer the party to two or three appraisers who do that kind of work. The referral is a service. The person who needed a licensed valuation and received a CMA has been given a document that will not do what it was needed for, and the office that produced it has described its work as something the statute says it is not.

The same clarity applies to the words used inside the office. An agent who tells a seller “I appraised it at” has held a CMA out as an appraisal. The office standard is that the CMA supports a price range and the agent presents a list price recommendation. The CMA is called by its own name.

Application

In one week the office receives four requests. The first is from a buyer the office represents under a buyer agency agreement, who asks for a market analysis of a house before an offer is written. The request is within the exemption: the buyer is a prospective buyer represented under a buyer agency agreement, and the analysis provides information for the offer. The CMA is prepared to the office standard, supports an offering position with a price range, and carries the statement that it is not an appraisal.

The second is from a seller’s attorney, who asks for “a value letter” for the seller’s mother’s estate; the mother died in March and the house will be listed in the fall. The listing CMA is the office’s work when the house is ready to be marketed. The date-of-death value is outside the exemption, and the attorney is given the names of two licensed appraisers.

The third is from a past client who is contesting a revaluation and wants “something official” to bring to the board of assessment appeals. A document for the appeal is outside the exemption, and the referral is made.

The fourth is a proposal to send a buyer’s lender a CMA “so the loan can move faster.” The lender ordinarily obtains its own valuation, a valuation for a loan is outside the exemption, and the CMA is not provided as the basis of the loan.

Each decision was made by asking two questions: whom is the document for, and what is it for?

Summary

Section 20-526 of the Connecticut General Statutes permits a licensee to estimate value as part of a market analysis performed for the owner or the owner’s designee for a prospective listing or sale, or to inform a seller, landlord, buyer or tenant under a listing or agency agreement, and the estimate is never referred to or construed as an appraisal. A document prepared for litigation, divorce, estate settlement, tax appeal or lending is outside the exemption whatever it is called, and a CMA may not be called or held out as an appraisal. The office applies the purpose test at intake, fulfills the requests within the exemption to the office standard, and refers the rest. In the office the CMA is called by its own name.