Property Evaluation - Creating a CMA

Tips for creating a CMA including the property value adjustments to use when comparing real property

1. Importance of the Skill 

1. Properly-priced homes sell
2. Agent Reputation
3. Increased showings
4. Better client relationships 
5. Referral base, satisfied sellers refer

2. Importance of the Skill

1. More and better purchasers
2. Better offers and double-dips
3. Successful transactions produce self-confidence
4. Skillset - More & better listings
5.  Rental property evaluation = additional clients 

3. Evaluation Concepts

1. The three basic appraisal approaches (MIC)
1. Comparable Sales
2.  Income Analysis
3.  Cost Analysis

4.  Fair Market Value Definition

1. Average, ready, and willing seller
2. Average, ready, and willing purchaser
3. Compulsion
4. Duress
5. Arm’s length

5. Fair Market Value Factors

1. Location, location and location.
2.  Property evaluation is an art, not a science.
3. Appreciation can be defined as real estate inflation
4.  Importance of school system

6. Fair Market Value Factors

1.  Most residential evaluation is done using comparables
2.  Recent sales similar in style, location & adjustment factors.
3. Comparables adjusted to subject property value
4. The market today sets the value & sales price of the home.
5. Value does not equal sales price

7. Evaluation Accuracy 

1.  Comparability of subject and comparable sales
2.  Recency and style of comparable sale dates
3.  Amount and type of adjustments made 
4. SAX - history, failures and successes

8.  CMA Process

1.  Neighborhood, Elementary, High School, Zip
2.  Same style
3.  Year built – 15 years either way
4.  One line display -  take lowest priced out
5.  Price per SF, ½ avg. per SF, adjustment

9. CMA Process

1. Common sense 
2. Sales to listings ratio
3. Days on the market
4. Consult management
5. Do your homework first

10. Improvements - increase value

1. Landscaping (if elaborate or new)  
2.  Additions
3. Finishing the basement
4.  An inground pool

11. Improvements - increase value

1. Garage addition
2. Additional land
3. Central air - $1,500
4. Built-in fireplaces - $2,000
5. Patio addition - $1,000 to $5,000

1. Improvements - no increase in value

1. New roof
2. New plumbing
3. New electrical service
4. New furnace
5. New downspouts

2. Improvements - no increase in value

1. New storms and screens
2. An above-ground pool
3. Excellent versus good condition (5% - 35%) 
4. New kitchen/Newer appliances
5. Decorative shrubbery

3. Other features that affect value

1. Square Footage
2. Number of bedrooms
3. Size of garage Basement in size
4. Family room
5. Style/Curb appeal

4. Other features that affect value

1.  Location
2.   Style
3.  Number of Bedrooms
4.  Basement or foundation

5. What to look for in an area

1. Absence or presence of industry
2. Similarity of price ranges of houses
3. General appearance of the area - (Well-kept)
4. Pattern of sales and number of houses listed
5. Lot - Width more important than dept

6.   Beefing up the CMA

1. Color and photos
2. RPR
3. Charts and Graphs
4. Tax information
5. Cover Letter - Purpose of the CMA 
7.   Adjustment factors - General
1. Date of Sale:  Appreciation is very local
2. Comparables in same school district
3. Site - frontage, very subjective - 20-25% for house
4. Curb Appeal - Gingerbread -  5%
5. Age - within 10-15 years - none, 15+ $1-2,000/year

NOTES:

If you don’t know the area, consult with local realtor or management Site is typically the size of the lot.  Pay attention to frontage

1.   Adjustment factors - Condition & Rooms
1. Condition - assume comparables average condition
2. Subject less than average, 5-10% adjustment
3. Rooms: 2 rooms total, no adjustment.  
4. 2 Bedrooms = 2 comparables - 2 bedroom
5. Baths:  Extra 1/2 bath - $3,000, Full - $6,000

NOTES:

$250,000, 5% ($10,500) = many repairs.  

Lower the price range, higher condition adjustment

Watch over-adjusting for above-average condition

Average condition  comparables to subject property

1.   Adjustment factors - Size
1. Square Footage:   Total of the rooms times 125%
2. Gross Living Area:  50% of additional square feet
3. Basement: Full basement vs. none:  $10-$15,000 
4. Half basement vs. none:            $ 7 - $10,000

Notes:  do not be overly generous with basement

1.   Adjustment factors - Size
1. Garage:  2-car vs. none $10,000 – $15,000, vs. 1 - 7,500
2. Finished Basement:  Total SF times $5.00 to $25.00
2. Adjustment factors - Others
1. "Bad" plan - bedroom through  bedroom, bath off kitchen), 5%+
2. Brick over frame:  5% 
3. Family room vs. none: square footage - empty nester?
4.  Fireplace:   $1500 – $2,500
3. Adjustment factors - Others
1. Porches:  Enclosed or screened-in porch (NICE) - $2-$5,000
2. Wood decks:  wolmanized wood - $10/square foot.
3. Remodeled Kitchen:  assumption - average, may be value
4.  In-ground pool, $3,000-$10,000.  Depreciate 7-10 years
4.   Likely to increase value 

1.   Most appeal to Purchasers - NAR

1.   Closing Thoughts
1. Become and remain the expert - RPR
2.  MLS profile – SAX
3. It really is about location School district
4. Get adjustment factors updated
5. CMA as a listing tool, staging and presentation