Authored by James M. “Lucky” McCann, The Lucky Broker
NYS Licensed Associate Broker,
C-REPS Certified Real Estate Pricing Specialist, CHMS Certified Home Marketing Specialist, PSA Pricing Strategy Advisor, CNE Certified Negotiation Specialist, MRP Military Relocation Professional, Member of NABPOP National Association of Broker Price Opinion Professionals
Hudson Heritage Realty, 57 East Main Street, Washingtonville, NY 10992

Computer Generated Values, CMAs, and other valuation methods don’t tell you what your house is worth. They don’t tell you what your house will sell for. They don’t even tell you at which price to list your property for sale. These tools estimate what the house may appraise for. In other words, they tell you how much a bank would be likely to loan on a given property. Given how many buyers need a loan, that’s an important number to keep in mind, but it’s not the only factor that determines sale price. It’s not even the only factor that plays into the listing price.

First, let’s take a look at the Computer Generated Value Model: 

Here’s the basics—a computer program takes the basic criteria of your house and searches local Real Estate databases for properties with similar characteristics. The program then takes the sale price of those homes, applies a mathematical equation and spits out a number within a standard deviation. In statistics, the standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates that the values tend to be close to the mean of the set, while a high standard deviation indicates that the values are spread out over a wider range. In other words it’s the degree of error which is deemed allowable by the equation. 

It’s that degree of error that’ll kill you every time. The average computer based model is designed to allow for a standard deviation of anywhere up to 20%. That means that the value they give you could be upto 20% higher or lower than the actual value of your home. Simply put, if your house was actually worth $100, the value they give you could fall anywhere between $80 and $120. Let’s see what happens when we change the numbers a little. Let’s say your house was worth $100,000. The numbers could be anywhere between $80,000 and $120,000. That’s a range of $40,000. Are you comfortable pricing your home based on that kind of accuracy?  If you really just want a general idea of what houses like yours might be selling for at the moment, knock yourself out putting your address on whichever value estimating website you would like, but that’s never going to tell you the right listing price for you.

Why shouldn’t you use the Computer Generated Value Model? Well, ever try computer dating? How’d that work out? I don’t mean to insult dating sites, but there’s more to love than 25 different personality traits that go well together. The same is also true of determining the listing price of a piece of Real Estate.

Next Up? The CMA or Comparative Market Analysis:

What is a CMA? I’ve heard so many versions of this acronym from professionals and clients alike it’s hard to be certain what it stands for. Regardless of whether it’s a Comparative Market Analysis, a Competitive Market Analysis or a Comprehensive Market Analysis, they all mean the same thing, and it’s probably all Greek to you.

A CMA is done by a Real Estate Agent, and in my opinion, preferably a Realtor®. Much like the Computer Generated Model, they will use the basic criteria for your property to select recent sales and properties currently on the market to compare with your property. Often, they will also take into account current properties that are under contract, as those will likely soon become a part of the Appraiser’s available data.

One reason a CMA, and ultimately working with a professional, is so important is that it is the only instrument that can also take into account expired listings—those properties that didn’t sell for the price they were asking.

If a CMA is done correctly, the Agent compares the aspects of your property to the others on the market and adjusts the value based on specific criteria to arrive at a value similar to that which an Appraiser gives for the property. An Agent can look at all aspects of your property and compare each specific feature. This is another reason why the CMA is preferred over a Computer Generated Model. Going with our Computer Dating site example above, this would be the equivalent of letting the dating website pick out a bunch of options for you, and then having a really good matchmaker sort through them and help pick out most of the frogs.

Let’s look at a very simplified CMA example: Our Subject Property is a three bedroom, two bathroom house that’s 1600 square feet. It has brand new stainless steel appliances, and the whole kitchen was renovated less than a year ago, complete with granite countertops. This house also has a two car garage and a finished basement that is not considered in the square footage. The house is situated on a quiet road on the end of a cul-de-sac.

The computer generated model will pull all of the properties that have recently sold that are around 1600 square feet, have two bathrooms, and are within a certain radius of your property. It will also compare a few other features, like age of home, acreage of the yard, etc.

A professional who is properly creating a CMA for your property, will start in a similar way. They will start by finding properties that have recently sold that are in your school district that have similar square footage. More importantly, they will compare house styles. If you have a Cape, they won’t look at ranches. They will then go through the listing photos of all of the comparable properties and decide what each kitchen looks like compared to yours. Is it newly remodeled with granite countertops? Was it remodelled, but done with laminate? Is the kitchen original to the house when it was built in the 60’s? They will double check all of the other features of your house compared to the other properties they have found. Things like Central Air, fireplaces, amount of garages, whether it has a pool, and numerous other features will all be considered. Each property will be added to and subtracted from to make it’s features and value equal to your house. For instance, if one of the houses only has one garage, and you have two, the value of one garage in your particular market would be added to the comparable property to make it equal to yours. In this process, in a perfect world, all of the comparable properties, after all adjustments, would end up being the same price—and this price would be a reasonable place to start when thinking about Listing prices—and should be a reasonable estimate for an Appraiser to arrive at later.

What is an Appraisal and Why Do I Care?

An Appraisal can only be done by a licensed Appraiser. An Appraiser has to go to school for much longer than a Real Estate Agent, and in many cases, has to apprentice for quite a while before performing Appraisals on their own. They have a very specific criteria for how they arrive at the values, and an actual appraisal is the only number that matters when it comes to financing. Much like a CMA, the adjustments will be made based on the various features of your home, square footage, finished basement, etc. Appraisers only take into account recent sales and properties currently on the market.

Although an Appraisal gives you the most accurate number that a bank will be willing to lend someone to purchase your property, and a CMA will give you a very detailed explanation of what the market may allow for your property, and a Computer Generated Value will give you a rough idea of what your property might sell for, none of these tell you the right number for you to list your property for sale. Here’s the catch, as stated earlier, no matter which model you choose, they only give you an accurate estimate of the amount a bank or investor may be willing to lend on the property. Buyers often are willing to pay more for a property than the bank will lend, many times they will not pay as much as an appraiser or CMA estimate the value to be. Not to mention that the buyer’s willingness to pay is not the only factor that will have an effect on the price or marketability of a property. Listing price can only be accurately arrived at after careful consideration and collaboration between you and your Real Estate Professional. 

Of course the only one who can ever truly know the Real Value of your home is you, and whomever is lucky enough to call it their new home in the future.