The general rule that most real estate agents will agree on is that sellers tend to believe their house is worth more than it is, and that buyers want to get as much as possible for as little as possible. It’s human nature, everyone loves a deal. Everyone wants to consider themselves a savvy homeowner. So if sellers want to sell high and buyers want to buy low, how does anything ever get sold? Figuring the market value of a home is crucial in the home buying process, since it levels the playing field and guarantees that the buyer and seller are both settling for a fair price. So how can you have a home valued?

There are two distinct ways to value real estate, and you will probably run into both as a buyer or seller. The first way is a CMA, or a “Comparative Market Analysis” and the second is an appraisal. Here are the differences:

A Comparative Market Analysis – A CMA can be put together by anyone—usually your real estate agent will put together a comprehensive packet for you if you’re buying or selling a home. Typically, they will pull all sales in the neighborhood in the past three months of homes that are similar to the subject property. These properties will compare in size, structure, year built, amount of bedrooms, bathrooms, whether they’re updated or not, etc. The more similar homes that can be found, the better. So what happens if the home you’re looking at a home in a neighborhood that hasn’t had many sales? Or what if the Cherry Creek homes for sale are each very unique? This is where an experienced real estate agent will come into play, since they can adjust the numbers based on length of time a house has sat on the market, price per square foot in an area of town and a few other factors.

An Appraisal – An appraisal can only be done by a licensed appraiser, and is typically regarded as the most accurate indicator of price. Appraisals are often ordered by the buyer’s mortgage broker, since they want to protect their interest in the home. Usually the appraisal will dictate how much the broker is willing to loan on the home; since they won’t want to finance a property that they could lose money on. If the agreed sales price is much higher than the appraisal, the bank will have the buyer renegotiate, or come out of pocket with the difference in price.

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