As a homeowner or potential buyer, you may have heard of both appraisals and comparative market analyses (CMAs) when it comes to determining the value of a property. However, these two terms are not interchangeable, and it’s essential to understand the differences between them.
Appraisal vs. CMA: What’s the Difference?
An appraisal is a formal, professional opinion of a property’s value conducted by a licensed appraiser. The appraiser will take into account various factors such as the property’s location, size, condition, and recent comparable sales. The purpose of an appraisal is usually to determine the value of a property for mortgage lending purposes.
On the other hand, a CMA is an informal estimate of a property’s value performed by a real estate agent. The agent will look at recent sales of similar properties in the area, as well as current listings and market trends, to provide a rough estimate of a property’s value. The purpose of a CMA is typically to help a seller set an asking price or to help a buyer determine an offer price.
While both appraisals and CMAs are used to determine a property’s value, there are some key differences between the two. Here are a few important distinctions:
- Who Conducts Them
Appraisals are conducted by licensed appraisers who are trained to provide unbiased, objective opinions of a property’s value. In contrast, CMAs are performed by real estate agents who may have a vested interest in the sale of the property.
- Level of Detail
Appraisals are much more detailed than CMAs. Appraisers use a standardized process to evaluate a property’s value, which includes a physical inspection of the property, research on the local real estate market, and analysis of comparable sales data. In contrast, CMAs are usually based on limited data and may not include a physical inspection of the property.
- Purpose
Appraisals are typically required when a property is being bought or sold with financing from a lender. The appraisal helps the lender determine how much to lend to the borrower. In contrast, CMAs are used by sellers to set an asking price or by buyers to determine an offer price.
Which One Should You Use?
The choice between an appraisal and a CMA depends on your specific needs. If you are buying or selling a property and need a professional opinion of its value for financing purposes, you will need an appraisal. However, if you are just looking for a rough estimate of a property’s value to set an asking price or make an offer, a CMA may be sufficient.
It’s important to note that both appraisals and CMAs have their limitations. An appraisal is only valid for a limited amount of time and may not reflect changes in the real estate market that occur after it was conducted. A CMA is only an estimate and may not be as accurate as a professional appraisal.
In conclusion, an appraisal and a CMA are two different methods of determining the value of a property. While both have their advantages and limitations, they serve different purposes and are used in different contexts. As a homeowner or potential buyer, it’s important to understand the differences between the two and choose the method that best suits your needs.