Comparative Market Analysis vs Appraisal

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When it comes to determining the value of a property, two common methods are used: Comparative Market Analysis (CMA) and Appraisal.

While both methods aim to estimate the value of a property, they differ in their approach, scope, and purpose.

Comparative Market Analysis (CMA)

A Comparative Market Analysis (CMA) is a report prepared by a licensed real estate agent or broker to estimate the value of a property. The report compares the subject property to similar properties that have recently sold in the same area, known as “comps.” The CMA takes into account various factors, including:

  • Location
  • Size
  • Age
  • Style
  • Condition
  • Features (e.g., number of bedrooms, bathrooms, fireplaces)
  • Recent sales data

The CMA provides an estimated value range for the subject property, which can help sellers set a competitive asking price and buyers make informed offers.

Appraisal

An Appraisal is a more formal and detailed process conducted by a licensed and certified appraiser. The appraiser visits the property, inspects its condition, and gathers data on its features and amenities. The appraisal report includes:

  • An estimate of the property’s value based on its physical characteristics and market conditions
  • A detailed description of the property’s condition, including any defects or needed repairs
  • A list of comparable sales data used to support the estimated value
  • An analysis of market trends and conditions

Appraisers are trained to provide an unbiased opinion of value, making them a reliable source for lenders, buyers, and sellers.

Key Differences

  • Purpose: A CMA is used to estimate the value of a property for listing or buying purposes, while an Appraisal is used to determine the value of a property for lending or insurance purposes.
  • Scope: A CMA typically focuses on recent sales data and market trends, while an Appraisal includes a detailed physical inspection of the property and an analysis of its condition.
  • Expertise: A CMA is prepared by a licensed real estate agent or broker, while an Appraisal is conducted by a licensed and certified appraiser.
  • Accuracy: Appraisals are generally considered more accurate than CMAs, as they are based on a detailed physical inspection and analysis of the property’s condition.
  • Cost: CMAs are often provided free or at a low cost by real estate agents, while Appraisals can be more expensive, typically ranging from $300 to $1,000 or more, depending on the location and complexity of the appraisal.

In summary, while both CMAs and Appraisals aim to estimate the value of a property, they differ in their approach, scope, and purpose. A CMA is a useful tool for real estate agents and clients, while an Appraisal is a more formal and detailed process used for lending and insurance purposes.

What is a Comparative Market Analysis in real estate

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A Comparative Market Analysis (CMA) in real estate is a report that estimates the value of a property by comparing it to similar properties that have recently sold or are currently listed for sale in the same area. The CMA is typically prepared by a licensed real estate agent or broker and is used to help sellers set a listing price for their property and to help buyers make informed offers.

A CMA typically includes the following information:

  • A list of comparable properties (comps) that have recently sold or are currently listed for sale in the same area
  • The sale prices and other relevant details of the comps, such as square footage, number of bedrooms and bathrooms, and lot size
  • An analysis of the similarities and differences between the subject property and the comps
  • An estimated value of the subject property based on the analysis of the comps

The CMA is a useful tool for real estate agents and brokers because it helps them to:

  • Determine a fair and competitive listing price for a property
  • Identify potential buyers and their price ranges
  • Negotiate the best possible price for a buyer
  • Provide valuable information to clients about the local real estate market

Here are some key points to consider when it comes to CMAs:

  • A CMA is not an appraisal, which is a more formal and detailed evaluation of a property’s value.
  • A CMA is typically prepared by a real estate agent or broker, while an appraisal is typically prepared by a licensed appraiser.
  • A CMA is based on recent sales data and market trends, while an appraisal is based on a physical inspection of the property and a review of its condition.
  • A CMA is usually less expensive than an appraisal, but it may not be as detailed or comprehensive.

Accuracy of property AVM

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The accuracy of Property Automated Valuation Models (AVMs) is a crucial aspect of the real estate industry. AVMs are designed to estimate the value of a property based on various data points, including historical sales data, property characteristics, and market conditions. While AVMs have improved significantly over the years, their accuracy can vary depending on several factors.

Challenges in AVM Accuracy

  • Data Quality: AVMs rely heavily on data accuracy and completeness. Inaccurate or outdated data can lead to flawed estimates.
  • Unique Property Features: AVMs may struggle to account for unique or non-standard features of a property that can significantly impact its value.
  • Local Market Conditions: AVMs may not fully capture local market conditions, such as changes in supply and demand, which can affect property values.
  • Lack of Human Judgment: AVMs are based on statistical models and may not consider human judgment and expertise in property valuation.

Measuring AVM Accuracy

AVM accuracy can be measured using various metrics, including:

  • Hit Rate: The percentage of properties for which the AVM finds a match in its database.
  • Record Count: The total number of properties the AVM has data for.
  • Mean Error: The average difference between the AVM’s estimate and the selling price.
  • Accuracy Rate: The percentage of valuations that fall within a specific range (e.g., 5%) of the selling price.

Conclusion

While AVMs have improved significantly, their accuracy can vary depending on the data quality, unique property features, local market conditions, and lack of human judgment. Industry-leading AVM providers, such as HouseCanary, have achieved exceptional accuracy ratings, but it is essential to consider these limitations when using AVMs for property valuation.

Zestimate Accuracy From Their Website:

How accurate is the Zestimate?

The nationwide median error rate for the Zestimate for on-market homes is 2.4%, while the Zestimate for off-market homes has a median error rate of 7.49%.

The Zestimate’s accuracy depends on the availability of data in a home’s area. Some areas have more detailed home information available — such as square footage and number of bedrooms or bathrooms — and others do not. The more data available, the more accurate the Zestimate value will be.

Link to Zillow post talking about accuracy along with tables for major metro areas.

https://www.zillow.com/z/zestimate/#acc

If you are thinking of selling and would like to dial in your home’s value in today’s market let me know and I will prepare a Comparative Market Analysis for you.

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What is a property Automated Valuation Model (AVM)

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An Automated Valuation Model is a software-based tool that uses statistical modeling and a database of existing properties and transactions to calculate the value of a residential or commercial property. It is similar to a real estate agent’s comparative market analysis (CMA), which compares the values of similar properties at the same time.

However, unlike a CMA, an AVM uses data provided by the user, as well as existing data, to automate and streamline the process, and the results are only as good as the data available.

How does it work?

An AVM uses a wide array of publicly-available and user-submitted data, such as property type, size, general location, and comparable sales data (when available), to provide an immediate value estimate. This data is then analyzed using mathematical or statistical modeling and a combination of existing databases to estimate property value.

Types of AVMs

There are two main types of AVMs: Comparables Based AVMs and Hedonic Models.

  • Comparables Based AVMs select comparables for each individual valuation based on the characteristics of the property to be valued. They operate similarly to how an appraiser would work when valuing properties through the sales comparison approach.
  • Hedonic Models try to isolate the impact of individual property characteristics in the form of pre-calculated parameters. They do not select comparables based on the individual property to be valued, and the valuation result cannot be traced.

Advantages and Limitations

AVMs have several advantages, including:

  • Time-saving: AVMs can provide an estimate of a property’s value in a matter of seconds, without the need for manual effort.
  • Objective: AVMs are objective, as they are based on data, which increases the accuracy and reliability of the valuation.
  • Cost-effective: AVMs can be more cost-effective than traditional appraisal methods.

However, AVMs also have some limitations, including:

  • Limited data: AVMs are only as accurate as the data available, and may not take into account unique property characteristics or local market conditions.
  • Inaccurate estimates: AVMs may produce inaccurate estimates if the data is outdated, incomplete, or incorrect.
  • Lack of physical inspection: AVMs do not consider the condition of the property when estimating its market value, which may not be entirely accurate.

Overall, AVMs are a valuable tool for real estate professionals, investors, and lenders, providing a quick and cost-effective way to estimate the value of a property.

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Mortgage Rates Tick Down as Markets Digest Incoming Data

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Following June’s jobs report, which showed a cooling labor market, the 10-year Treasury yield decreased this week and mortgage rates followed suit. There is also more inventory on the market, including a fair number of listings with price cuts, which is an encouraging sign for prospective buyers.

All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. © 2024 by Freddie Mac.

Home Value Update: June 2024

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U.S. existing-home sales declined for the third consecutive month, as higher mortgage rates and rising sales prices hindered market activity during what has traditionally been one of the busiest months of the year. According to the National Association of REALTORS® (NAR), sales of previously owned homes dipped 0.7% month-over-month and 2.8% year-over-year, to a seasonally adjusted annual rate of 4.11 million units.

Nationally, total housing inventory grew 6.7% month-over-month to 1.28 million units heading into June, for a 3.7 months’ supply at the current sales pace, according to NAR. However, the increase in supply has yet to temper home prices, which have continued to rise nationwide. At last measure, the median existing-home price climbed to $419,300, a 5.8% increase from the same period last year and a record high for the month.

North San Diego County Home Stats:

  • Closed Sales decreased 7.8 percent for Detached homes and 13.6 percent for Attached homes.
  • Pending Sales decreased 0.3 percent for Detached homes and 4.4 percent for Attached homes.
  • The Median Sales Price was up 13.9 percent to $1,249,000 for Detached homes and 7.7 percent to $765,000 for Attached homes.
  • Days on Market increased 22.2 percent for Detached homes and 43.8 percent for Attached homes.
  • Supply increased 8.7 percent for Detached homes and 35.3 percent for Attached homes.

The numbers by city:
These #’s are for Single Family Detached homes and do not include Attached Homes, aka condos and townhomes.
DOM = Days on Market
% List Price = Percentage of the original list price that the home sold for.

Carlsbad

MonthAvg
Sold $		ChgDOMChgSold HomesChgActive ListingsChg% List PriceYoY Chg
06/24$1,999,000-1%18-5%179-5%11717%100.0%4.1%
05/24$2,024,000-1%19-5%18911%10018%100.4%6.5%
04/24$2,039,0004%20-17%17120%858%100.5%13.7%
03/24$1,960,000-3%24-4%14221%795%100.1%18.3%
02/24$2,024,0001%25-14%11717%75-12%99.4%27.0%
01/24$2,005,000-0%2912%100-2%85-6%97.7%25.5%
12/23$2,013,00012%26-4%102-20%90-10%96.9%24.0%
11/23$1,795,0001%2723%128-15%1004%97.2%13.1%
10/23$1,778,0001%2216%151-19%96-5%98.3%10.2%
09/23$1,759,000-3%1927%186-3%101-3%98.5%3.3%
08/23$1,815,000-2%157%1917%1041%99.6%0.7%
07/23$1,861,000-3%140%17915%1036%100.0%2.2%
06/23$1,920,0001%14-26%156-3%9723%100.3%3.0%
05/23$1,900,0006%19-17%16115%7922%100.0%2.4%
04/23$1,793,0008%23-26%1409%655%98.4%-0.8%
03/23$1,657,0004%310%12835%62-2%96.9%0.8%
02/23$1,594,000-0%3111%95-17%63-19%95.5%5.1%
01/23$1,598,000-2%280%114-10%78-21%95.9%4.1%
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Title Insurance: 2 Types

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Your closing costs might include two types of title insurance policies, but do you know how these policies differ?

Loan Policy

Your lender requires title insurance when you secure a mortgage. A loan or lender’s policy protects the bank or lending institution for as long as they maintain an interest in your property—typically until your mortgage is paid off. If you refinance your loan, you’ll need to purchase a new policy to cover the new loan.

Owner’s Policy

An owner’s policy of title insurance helps protect your rights as the homeowner for as long as you or your heirs own the property. In some areas, it’s standard for the seller to purchase the owner’s policy for the buyer, whereas in other areas the owner’s policy is a recommended buyer purchase.

So what exactly is “Title Insurance?”

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So what exactly is “title insurance?” Well, when a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived.

When you buy title insurance for your property, a title company searches these records to find – and remedy, if possible – several types of ownership issues. First, the title company searches public records to determine the property’s ownership status. After this search, the underwriter will determine the insurability of the title.

Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So after the title company finishes its searching, it also provides a title insurance policy that will help protect you from a variety of issues that might be uncovered later.

What is mortgage insurance?

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A: Private mortgage insurance (PMI) policy held by your lender which indemnifies them is an insurance against losses on their investment in your mortgage when you default.

PMI is not property insurance covering hazards to its improvements, a policy also required by the mortgage lender.

Typically, mortgages insured by PMI are covered for losses on amounts exceeding 67% of the property’s value at the time the mortgage is originated.

PMI is required as a condition for funding a mortgage when your down payment is less than 20% of the purchase price. Before your mortgage is funded, you will undergo an in-depth risk analysis based on the PMI insurer’s eligibility requirements.

The PMI investigation and documentation takes place after you submit a mortgage application. It is generally limited to verification of your representations on the application.

Your PMI premiums are typically paid through your monthly mortgage payments. However, some lenders and PMI insurers offer a lender-paid mortgage insurance (LPMI) program.

When offered by the PMI insurer, your lender pays the mortgage insurance premium and passes the cost on to you as a higher interest rate on your mortgage. However, LPMI cannot be cancelled, while borrower-paid PMI may be cancelled or automatically terminated.

LPMI only terminates upon a refinance or other total payoff of your mortgage.

Premium rates are set as a percentage of your mortgage balance and are calculated in the same manner as interest.

PMI coverage may be terminated when the equity in your property reaches 20% of its value at the time the mortgage was originated. Once the equity in your property reaches 22% of its value, PMI is automatically cancelled.

Federal Housing Administration (FHA)-insured mortgages are also available for homebuyers with little cash available for a down payment.

To qualify for an FHA-insured mortgage, you are required to make a minimum down payment of 3.5%.

When you obtain an FHA-insured mortgage, you pay a mortgage insurance premium (MIP) to the FHA. An upfront MIP is added to the principal amount financed in addition to the charge at the annual MIP rate, which is added to your monthly principal and interest payments, similar to PMI.

However, the MIP remains in place, paid monthly for the life of the FHA insured mortgage.

If you default on an FHA-insured mortgage, the FHA covers your lender against any loss on the balance of your mortgage. However, you remain personally liable to the FHA for any loss the FHA suffers as a result of your default.

Home Value Update: May 2024

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U.S. existing-home sales fell for the second month in a row, sliding 1.9% month-over-month and 1.9% year-over-year, according to the National Association of REALTORS® (NAR), with sales down in all four regions of the country.

Higher borrowing costs and accelerating home prices continue to weigh on demand, pushing some prospective buyers to the sidelines and causing market activity to slump ahead of summer.

  • Closed Sales increased 2.2 percent for Detached homes but decreased 0.7 percent for Attached homes.
  • Pending Sales increased 8.0 percent for Detached homes and 2.4 percent for Attached homes.
  • The Median Sales Price was up 14.3 percent to $1,200,000 for Detached homes and 20.4 percent to $825,000 for Attached homes.
  • Days on Market decreased 8.0 percent for Detached homes but increased 5.0 percent for Attached homes.
  • Supply increased 4.8 percent for Detached homes and 20.0 percent for Attached homes.

Home prices have continued to climb nationwide, despite an uptick in inventory this year. Nationally, the median existing-home price reached $407,600 as of last measure, a 5.7% increase from the same period last year and a record high for the month, according to NAR. Meanwhile, total inventory heading into May stood at 1.21 million units, a 9% increase month-over month and a 16.3% increase year-over-year, for a 3.5 month’s supply at the current sales pace.

The numbers by city:
These #’s are for Single Family Detached homes and do not include Attached Homes, aka condos and townhomes.
DOM = Days on Market
% List Price = Percentage of the original list price that the home sold for.

Carlsbad

MonthAvg
Sold $		ChgDOMChgSold HomesChgActive ListingsChg% List PriceYoY Chg
05/24$2,024,000-1%19-5%18911%10018%100.4%6.5%
04/24$2,039,0004%20-17%17120%858%100.5%13.7%
03/24$1,960,000-3%24-4%14221%795%100.1%18.3%
02/24$2,024,0001%25-14%11717%75-12%99.4%27.0%
01/24$2,005,000-0%2912%100-2%85-6%97.7%25.5%
12/23$2,013,00012%26-4%102-20%90-10%96.9%24.0%
11/23$1,795,0001%2723%128-15%1004%97.2%13.1%
10/23$1,778,0001%2216%151-19%96-5%98.3%10.2%
09/23$1,759,000-3%1927%186-3%101-3%98.5%3.3%
08/23$1,815,000-2%157%1917%1041%99.6%0.7%
07/23$1,861,000-3%140%17915%1036%100.0%2.2%
06/23$1,920,0001%14-26%156-3%9723%100.3%3.0%
05/23$1,900,0006%19-17%16115%7922%100.0%2.4%
04/23$1,793,0008%23-26%1409%655%98.4%-0.8%
03/23$1,657,0004%310%12835%62-2%96.9%0.8%
02/23$1,594,000-0%3111%95-17%63-19%95.5%5.1%
01/23$1,598,000-2%280%114-10%78-21%95.9%4.1%
12/22$1,623,0002%28-7%127-19%99-14%94.4%4.9%
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