General Property

Comparative Market analysis: Does CMA accurately Price Property to Meet Current Market Demands?

By Bob Thompson

We collect our just due when a listed property closes. We want to tell all that our “Marketing Plan” will save the day. But properties fail in droves especially in times where there is an excess of supply over demand. This is part 1 of a multi-part essay to look into the scourge of expiration, cancellation and withdrawal. The concluding paper offers a new method to price and manage listed property that moves the CMA into the background where it belongs.

An unmistakable outbreak of joy occurs all around when a property is listed. The agent is happy. He looks forward to future income as does the broker. The title company looks forward to a new policy and all the other vendors sense higher times ahead. The seller anticipates moving to the next stage of his life, hopefully with the proceeds of a favorable sale. Let us therefore, at least for a time, pass all secondary and collateral questions and consider the main subject of the present question. Will the property actually close and monies be collected? After all, in real estate transactions, money resolves all problems.

The main subject, then, is whether the property is priced to meet the demands of the current market. In attempting to prove the price is correct and worthy, the aware agent utilizes the tried and true comparative market analysis (CMA) due to the absence of any other dependable method for assigning a value to the property. The principle of the system is that the CMA process is accurate and reasonable. This premise is mainly false. The CMA has evolved into a patchwork method in which the users have limited experience in application and continuously fail to achieve the expected outcome because of known, unknown, and unanticipated independent variables.

Our business is a theatre which exhibits, in full operation, two radically different systems: the one resting on the basis of what we think is happening, and the other which is really taking place. We are experts on the first and painfully aware of the second, while our knowledge of this alternative reality and its workings is shallow indeed. The aware agent has learned that all things: demand, supply, condition, location, fear, and greed are accounted for by the CMA methodology and a little time and luck.

Lamentably, our CMA methodology falls short in times where the market becomes testy for the seller. When the supply side overwhelms the demand side, the Realtor notes that his time on the market (DOM) is increasing and his spirits falling as old man time moves along. The tick tick tick of the clock passing is really the drip drip drip of potential income leaking from his bank account. Worse, the seller, certain that his home is special above all others, insists he have his way and holds his price or offers only a meager discount after much anguish.

Oh so subtly, lurking in the background unknown to the agent, a hidden force is at work. This force creeps in by a side door and undoes the agent’s well thought-out pricing strategy. As the bard says, “It is not in the stars to hold our destiny but in ourselves.” We failed to consider the important issue of property symmetry in our original CMA estimates, and now it is one of the forces that will undo our best laid plan. Watch for part 2 in the next issue.

1 This assumes our listing agent has not sold out to the concept of the marketing plan overcoming inaccurate pricing.

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