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Competitive Market Analysis

DEFINITION

Process used by agents to estimate the value of real property by using recently sold comparables to establish an informal price for the buyer or seller. A C.M.A. is typically used to establish a price for a listing.

EXPLANATION

A competitive market analysis is the process used by agents to estimate the value of real property by using recently sold comparables to establish an informal price for the buyer or seller. A CMA is typically used to establish a price for a listing. Furthermore, a CMA is not used in an official appraisal and will therefore likely not be used to determine eligibility for financing.

Legislation Related to Competitive Market Analysis

Following the real estate collapse of 2007 and 2008, new appraisal provisions were added, thereby affecting the method in which property values were calculated. Prior to 2008, lenders did not explicitly prohibit private appraisers from appraising property value. Eventually concluding that this strategy was ineffective, lawmakers and real estate professionals alike agreed that it was in the best interest of the market bar and refuse lenders and third-party consultants from being able to influence appraisal reports by choosing their own appraisers.

The new laws and regulations, which were passed with the intent of stabilizing the market, were called the Home Valuation Code of Conduct. This measure, passed in March of 2008, brought forward new rules and regulations intended to reduce the potential for inaccurate appraisals.

Following the passage of the Home Valuation Code of Conduct, a new bill was passed, superseding the original Home Valuation Code of Conduct. This new bill, passed in Congress and signed into law, was named the Dodd-Frank Act. The act was created with the intent of providing independence in an otherwise entangled market. The act stressed the importance of having independent real estate and mortgage professionals ordering and performing appraisals, rather than allowing third party appraisers and lenders who were existing acquaintances and could therefore influence the appraisal. This was believed to help rid the market of winners and losers by allowing the market’s invisible hand to determine property values.

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