Avoiding CMA Mistakes

Agents make three major mistakes in the CMA preparation process: They work to establish a high sales price, they include too many comparable homes in their comparison, and they overemphasize the price per square foot. Here’s how to avoid the traps:

• Overpricing. If you approach a CMA with the desire to establish the highest sales price for the seller, more likely than not, you’ll end up with an overpriced listing. Remember, the goal of a CMA is to determine a demonstrated indication of the true current value of the home. You’re not looking to develop an opinion of what a buyer might view as a reasonable value. You’re working with facts to arrive at an objective, accurate valuation.

Explain the purpose of the CMA to your seller and achieve a meeting of minds that you are not working to justify the highest price but rather to reflect market conditions and arrive at an accurate value in order to present and sell the house in a timely manner.

• Presenting too many comps. I’ve seen agent-produced CMAs that include 15 or 20 comparable homes in each category: sold, pending, active, and expired. Do the math – the result is up to 80 home prices to review and enough information to confuse even the most analytical seller. Beyond confusion, many sellers latch onto the most unreasonably priced home in the review, wondering why they shouldn’t at least start at the price the people on Mulberry got, even though its price is $20,000 over current market value. Here’s my advice: Once you select four to six comps for each category, stop gathering information and begin assembling your CMA into final form

• Putting too much emphasis on “price per square foot” findings. When comparing prices, agents often calculate the price per square foot of comparable properties. They arrive at this figure by taking a sale or listing price and dividing it by the home’s square footage. For instance, a 1,500 sq. ft. home listed at $425,000 has a $283.33 price per square foot.

I personally believe price per square foot has a limited effect on value. For one thing, it doesn’t account for the quality of a home – the quality of the finish work, the baseboards and casings and moldings, the marble floors, granite countertops, elegant appliances, top-grade bathroom fixtures, and landscaping extras. It doesn’t take into account such factors as stone exterior, paved patios, extra garages, or architectural design features. Price per square foot treats each home like a box on a plain vanilla lot. It doesn’t evaluate anything that really makes a house a house. Yet agents and consumers use the calculation as if it were gospel – often using it to defend low offers – when in reality a long list of other factors make the price per square foot calculation either meaningless or erroneous. n