The Two Most Important Adjustments in a CMA

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Whether you're a seasoned real estate agent or just starting out, understanding CMAs and their crucial adjustments is paramount to providing accurate property valuations. In this blog post, we'll delve into the two most important adjustments that can significantly impact the accuracy of your CMAs.

What is a CMA?

Before we dive into the adjustments, let's briefly clarify what a CMA is. A Comparative Market Analysis, or CMA, is a vital tool in the real estate industry. It involves analyzing comparable properties, making adjustments, and using this information to determine the value of a subject property. The quality of your CMA depends on how well you handle these adjustments.

Adjustment #1: Time Adjustment

The first and perhaps most critical adjustment in a CMA is the time adjustment. Why is it so crucial? Because the real estate market is in constant flux. Properties that were similar but sold at different times can have vastly different values. Here's why this adjustment is essential:

  1. Market Volatility: Real estate markets can change rapidly, with prices fluctuating significantly over short periods. Using a comparable property's sale price from six months ago may not accurately represent the current market conditions.
  2. Limited Inventory: In some areas, finding recent comparables can be challenging due to a limited number of home sales. This necessitates looking back several months for suitable comparables.

How to Address Time Adjustment:

To determine whether a time adjustment is needed, consider the following steps:

  1. Calculate the Adjustment: If your market data suggests a 12% increase in prices over the past year, break it down into a monthly adjustment (12% divided by 12 months = 1% per month).
  2. Assess Validity: Apply the adjustment to a comparable property and compare it to active listings. Ensure that the adjusted value aligns with what's happening in the current market.
  3. Use Comprehensive Data: Instead of relying solely on year-over-year statistics, analyze data over the past year within your market area. This approach provides a more accurate time adjustment.

Adjustment #2: Square Footage Adjustment

The second crucial adjustment involves square footage. Even when you find excellent comparables, slight differences in square footage can significantly impact a property's value. Here's why square footage adjustment matters:

  1. Size Matters: Buyers and appraisers often place a premium on square footage. A slight difference in size can lead to a substantial change in price.
  2. Common Mistakes: Many make the mistake of either neglecting square footage adjustments or applying them at the full price per square foot. Both errors can lead to inaccurate valuations.

How to Address Square Footage Adjustment:

When dealing with square footage adjustments, keep these key points in mind:

  1. Percentage-Based Adjustment: Square footage adjustments should be based on a percentage of the total price per square foot, typically ranging from 25% to 45%.
  2. Avoid Extremes: Don't ignore square footage adjustments, but also don't apply them blindly at the full price per square foot. Find the most accurate adjustment based on market trends.

While there are other adjustments that might be necessary in a CMA, focusing on time adjustment and square footage adjustment will cover a substantial portion of your valuation needs. PropertyBrain is here to help streamline this process, offering accurate time of sale adjustments and square footage adjustments to ensure your CMAs are as precise as possible.

By consistently addressing these two critical adjustments in your CMAs, you'll elevate your ability to provide accurate property valuations, establishing yourself as a trusted expert in your local real estate market. For more in-depth information, watch this video, and if you have any questions or need further guidance, don't hesitate to reach out. We're here to assist you in perfecting your CMA game.

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The Two Most Important Adjustments in a CMA