Beware of the CMA

Article written and provided by Neil Jenman from . To see the original source of this article please click here.
by Neil Jenman

READING TIME: 3.5 minutes apx

A Comparable Market Analysis (CMA) is a common tool in real estate.

Here’s how it works: When you want to sell your home, most agents will compile a list of similar homes that have recently sold. Beside each home will be the price at which that home sold. The purpose of this CMA is simple: to prove to you the real value of your home.

A CMA is also used when agents try to persuade you to accept an offer on your home, usually at a price lower than you hoped to get – and, often much lower than the agent may have originally promised you.

A CMA is convincing and powerful. It persuades home sellers to be “reasonable” and lower their prices. That’s why CMAs are so popular with agents.

But there is a major flaw with all CMAs – and most sellers are not aware of it. This flaw can easily cost sellers tens of thousands of dollars.

The flaw is this: Most of those comparable homes have been undersold. So, if you accept the “proof” in the CMA, your home will also be undersold.

If you want the best price for your home, don’t compare it with homes that have been undersold by tens of thousands of dollars.

Extensive research (conducted by this writer) over many years has uncovered an important fact: Most homes (about 85 per cent) are undersold. The dollar amount by which these homes are undersold is at least eight per cent of the sale price.

So, if a home is reported as sold for $500,000, it has probably been undersold by $40,000. It should have sold for $540,000. Often the undersold amount is as high as ten or 12 per cent. In some cases, usually auctions, it’s common to find properties undersold by as much as 25 per cent. For example, a gorgeous property that recently sold for $11 million at auction was undersold by $4 million. The buyers were prepared to pay $15 million. Auctions focus on the lowest price sellers will accept instead of the highest price that buyers will pay.

If an agent gives you “proof” of a CMA, always remember this: Most of those lovely homes have been undersold by at least 8 per cent. Don’t let the same happen to you.

The best way to protect yourself is this: Whatever price the agent wants you to accept, ADD ABOUT 10 PERCENT. Then hold firm.

There is only one price at which you should be selling and that’s the highest price.

To prevent your home from being undersold, be wary of CMAs.