The Office Pricing Standard
Without a written pricing standard, CMAs prepared in the same office can differ in what they contain from one to the next. With one, the office produces every CMA to the same nine elements, so that each price range the office presents rests on the same foundation. This lesson sets out the standard as a one-page document the office adopts, with each element stated in a sentence, in the order it is met.
Why the standard is written
A CMA is the office’s work product. It carries the office’s name, it is the basis of the list price the seller accepts, and it is the document the office will be asked about when a listing expires unsold or the price on a later contract is not supported when the property is appraised. A written standard establishes what “complete” means before any of that happens. It also settles what the office requires rather than leaving it to individual preference. When the standard says the market area is defined and supported, a CMA that does not define it is incomplete, and that conclusion rests on the standard rather than on opinion. The standard is a professional standard the office adopts, not a requirement of Connecticut law. The one element the law reaches is the statement in element 9, the office’s means of meeting the requirement of Section 20-526 of the General Statutes that a licensee’s estimate never be referred to as an appraisal. Elements drawn from Fannie Mae, such as at least three closed sales from the past twelve months, are included because a listing sold to a buyer who finances is ordinarily appraised, and the CMA prepares the listing for the appraisal it may meet.
The nine elements
1. The market area is defined and supported. The CMA states the boundaries of the competitive market area, the area within which properties compete with the subject for the same buyers, and states what supports those boundaries: a subdivision, a set of streets bounded by a highway or a change in housing type, or, in open areas, a distance from the subject. A town name is not a market area. Under the method of search the standard adopts, the search starts in the subject’s own town: a buyer may consider more than one town, but the comparable evidence comes from the subject’s town, because a neighboring town has its own taxes, services and assessment, so its sales reflect that town’s market. The search leaves the town only as the exception, when the property’s buyers would consider only properties of its own kind and the town has no sales of that kind that serve as good substitutes, and when it leaves the town the CMA notes why each sale was chosen, which town it came from, and how the differences between the towns were taken into account.
2. Market conditions for the segment are described. The CMA reports the condition of the market for properties of the subject’s kind and price tier, not for the town as a whole: the number of sales in the period, the number of active listings, the months of supply those two figures produce, the direction of prices over the period, and the typical days on market. These figures come from the same segment the comparables come from. A rising market and a declining market call for different positioning, and a CMA that does not state which one the subject is in does not show the support for its recommendation.
3. The subject is documented. Gross living area for the subject and each comparable is generally taken from the best available record (the assessor’s card, the public record, the MLS listing, builder plans or a prior appraisal), with the source noted. Where sources disagree, the difference is noted, not guessed at. The ANSI Z765 standard, which Fannie Mae requires for an appraisal, is taught so the agent knows how the appraiser measures and why the appraiser’s figure may differ from the record. Condition is documented as facts, not as a rating alone: the year and scope of the kitchen and bath updates, the age of the roof and the heating system, and any deferred maintenance a buyer would see, so that the condition stated for the subject rests on what was observed. Room count, bathroom count, garage, site size, age and any feature buyers in the segment pay for are recorded from verified sources, and a conflict among sources is noted with the source of each figure.
4. The comparable pool is shown with the reason for each sale used and set aside. The CMA lists every closed sale in the market area during the search period that meets the search criteria, and for each one states whether it was used or set aside and why. The sales used include at least three closed sales, ordinarily from the past twelve months, the period Fannie Mae’s guidance uses. A sale used because it is the best available comparison reads differently from one used for the price it supports, and the reason column is where the difference shows. A sale closer and more similar than those selected does not stay off the list without a reason. An appraisal report, where the sale is financed, states the price range, low and high, of comparable sales in the subject’s market; some appraisers list the additional sales analyzed but not used, and others keep them in the workfile. Either way, a lender reviewing the report can see the range and can question why sales at its lower end were not used, so a lower-priced sale that is otherwise highly comparable is not left out of the CMA because of its price.
5. Every sale is verified. The recorded price, the contract and closing dates, seller concessions, the sale type and the relationship of the parties for each comparable are confirmed from the MLS closing data, the land records and, where anything is unclear, the listing agent. A sale between related parties, or one not offered on the open market, is set aside with the reason noted, or retained with the reason stated when no better evidence exists.
6. Adjustments are made to the comparable and supported by the market. Each adjustment is applied to the comparable, never to the subject. Differences between the subject and the comparable sales are generally adjusted, except when the difference is too small to quantify or the sales show no market reaction to it. Each adjustment is supported by evidence from the market: paired sales, market extraction (including the Ratterman method) or, for time, a measured market-conditions rate. A concession with no matched sales to measure it starts from its face amount, and depreciated cost serves as support only where the sales cannot isolate an improvement; each source is stated. Bracketing tests whether the adjusted sales bound the subject; it does not assign an adjustment figure. The support is written into the grid or on a page behind it. An adjustment believed to be right that cannot be shown is not made. Net and gross adjustments are totaled for each comparable, and a comparable that needed far more correction than the others is either replaced or explained.
7. The indications are reconciled to a price range and the weighting is explained. The adjusted comparables produce a set of indications, and the CMA states which received the most weight and why: the closest similarity, the fewest and smallest adjustments, the most recent date, the best verification. The reconciliation is stated in a sentence or two, with any weighting arithmetic shown behind it; it is a weighting, not a simple average, and an average is shown only as a check.
8. The list price is positioned against the actives and pendings. The CMA shows the active listings and pending sales that compete with the subject and places the recommended list price in relation to them. Closed sales set the range; actives and pendings position the list price within it and do not move it, because they show what the subject will be compared against on the day it is listed. A list price that sits above every comparable active in a market with rising supply is at risk of expiring unsold, and the CMA says so.
9. The result is a range, never a single figure, and the document carries the required statement. The CMA presents a price range and a list price recommendation within it. It does not present a “value.” The office’s statement that the document is not an appraisal, its written means of meeting the statute’s requirement that the estimate never be referred to as one, appears on every copy.
How the standard is used
The standard is kept in the office’s listing file template. When a CMA is begun, the standard is the list of what to assemble and the order in which to assemble it. When a seller asks how the office arrived at a range, the standard is the explanation. A CMA that meets all nine elements is complete and ready to present to the seller; one that does not is completed by supplying the missing element before it is presented.
Application
A draft CMA for a 1,900-square-foot colonial is read against the standard. Elements 3, 5 and 6 are met: the subject’s living area is taken from the assessor’s card with the source noted and its condition is recorded as facts, each sale is verified, and the three adjustments on the grid carry paired-sales support. Element 1 is not met; the market area is described as “the north end of town,” which is a direction rather than a boundary, and one comparable sits in a neighborhood with larger houses and a higher price tier. Element 2 is missing. Element 9 is not met; the last page reads “estimated value $612,000.”
The draft needs three corrections: define the market area and state what supports it; add the segment’s sales, actives, months of supply and price trend for the period; and present the result as a range with the required statement. The material for all three is assembled, and the completed CMA supports a range of $595,000 to $615,000, with the list price positioned below two actives that have sat for sixty days without a contract.
Summary
The office pricing standard is a one-page document stating the nine elements every CMA prepared in the office contains: a defined and supported market area, the segment’s market conditions, a documented subject with the source of its living area noted and its condition set out in facts, a comparable pool with a reason for each sale used and set aside, verified sales, market-supported adjustments made to the comparable, a reconciliation with the weighting explained, positioning of the list price against actives and pendings, and a price range carrying the required statement. Written once and kept in the listing file template, it gives every CMA the same list of what to assemble and makes completeness a matter of the standard rather than of opinion.