Can CMA's be trusted

Question

My wife and I are looking at our first real potential purchase to begin investing. I don't know if I'm experiencing all the F.E.A.R. (false evidence appearing real) that comes with the first deal, but I can't seem to bring myself to buy in on three Comparative Market Analysis that have been performed for the subject property. All the comps look pretty similar in age, sqft, and location. The CMA's, based on the comps, say the house can be sold for around 75K (except for one that came in way low, which I think was prepared wrong), but I don't think I can get more than 69K for it and may likely sell for 62K to make a fast sale. $80/sqft vs. $65/sqft.

So the question stands... Can a well done CMA be a good indicator to the likely FMV of any subject property??? Any comments are greatly appreciated. Thanks to all for your input.

So the question stands... Can a well done CMA be a good indicator to the likely FMV of any subject property???  Any comments are greatly appreciated.  Thanks to all for your input.

Ryan Webber · Answer

Mike's right on.  You have to learn your market.  Now a very good way to learn your market is to study ALL the sales in that area.  When I used to use realtors to pull comps I would ask for ALL the houses that have sold in that area.  I don't just want what the realtor determines is comparable.  I want every house in a 1/2 mile area or 1 mile area or whatever it is that I determine is needed.  I want ALL the information, and then I can make an educated estimate of value

Now I do believe that an objective CMA contains the most extensive and accurate information on what that house will sell for.  Yes, the market can change, and factoring in any significant market changes in the applicable time period would be a good idea, but recent past data is the best insight into future performance.

Michael Rossi · Answer

Ruben,

If you are going to run a serious business, then you should do the work to learn your market.  If that means that you have to look at 100 or 200 houses in your target investment area, then that is what you should do.

CMAs are only as good as the person preparing them AND THEIR MOTIVATION.  For examples, realtors know that sellers want to receive a high CMA for their property.  Therefore, realtors will often find high comps so that the seller will list their property with the agent.  Seasoned buyers will often find low comps to justify a lower price to a seller.

Residential appraisals are largely based on comps.  Have you noticed that appraisals come in exactly at the number needed to make the loan work.  It's a big joke  --  or should I say SCAM.

My advice is to do whatever it takes to become an expert in your market.  Then you won't need to depend on anyone else to give you comps.

Mike