Comparative Market Analysis vs. Appraisal: What’s the Difference?

Determining the value of your home is one of the most crucial first steps in putting your home on the market. Ask too much, and you limit your potential buyer pool. Ask too little, and you miss out on much-needed cash in your pocket. Numerous factors go into pricing a home and finding the sweet spot requires careful consideration.

Home sellers have two tools at their disposal for establishing the accurate value of a home: a comparative market analysis (CMA) and a home appraisal. Though they share many similarities, there are key differences in how the two approaches ultimately arrive at a home’s listing price.

Comparative Market Analysis

A CMA is conducted by agents using their knowledge of the local market in conjunction with information available to them on the Multiple Listing Service (MLS). The MLS is an online database that contains detailed information on homes for sale as well as market trends. Information gleaned from the MLS can help an agent price a home accurately and strategically, ensuring it is competitive in the current market. It should be noted that the MLS is only accessible to real estate agents, not owners who choose to sell their homes.

In developing a CMA, agents include other factors that influence home prices to arrive at an accurate estimate of a home’s value as well. A CMA compares homes for sale and those that have recently sold in the same area. Comparable homes, known as comps, are homes with similar square footage, lot size, condition and type. A thorough CMA will provide information on selling prices, time on the market, and the difference between a listing price and sold price. They will include a home’s low, median, and high selling price.

Home Appraisal

A home appraisal is an independent evaluation of a property’s value conducted on behalf of a mortgage lender when a buyer applies for a loan. Banks don’t want to loan more money than a home is worth, so an appraisal is necessary to ensure the home’s value and mortgage amount are aligned. Appraisals are also used in the refinancing process.

Unlike a CMA, an appraisal is conducted by a licensed, third-party professional who has no vested interest in the home’s value. Rather, the appraiser inspects the home to assess its condition, location, design and size. It takes into consideration the current market and comparable sales. The goal of an appraiser’s visit is to determine the home’s fair market value. Occasionally, values do come in low; in these cases, buyers will have to come up with the difference out of pocket or renegotiate the transaction.

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The main difference between a comparative market analysis and a home appraisal is who’s behind it: An agent is behind a CMA while a lender is behind an appraisal. Both are important tools in a home selling toolbox and can help establish a price based on fair market value, making the process smoother for all parties involved.

The above was written in part by Sandy Dodge, social media content editor at Windermere Real Estate.