Listing Price, Property Taxes and Equity

The Comparative Market Analysis and Listing Price Adjustments

A real estate licensee, practicing under the supervision of a supervising broker, frequently assists sellers in evaluating the market to determine an appropriate listing price. To accomplish this, the licensee prepares a comparative market analysis (CMA). A CMA is an informal valuation tool prepared by a real estate licensee to assist a seller in establishing a listing price. This tool differs from an appraisal, which is a formal, supported opinion of value developed by an appraiser. State licensing requirements for appraisers depend on the jurisdiction and the specific type of assignment.

A CMA commonly uses comparable sales; an appraisal may use the sales comparison, cost, or income approach, as appropriate to the property and assignment. In this approach, adjustments are made to the comparable properties' sale prices to account for differences from the subject property. An essential principle to remember is that adjustments reflect the market value contribution of a feature rather than its original installation or replacement cost. When a comparable property is superior to the subject property in a feature, the value of that feature is subtracted from the comparable's sale price. Conversely, if a comparable property is inferior to the subject property in a feature, the value of that missing feature is added to the comparable's sale price. These principles are remembered through two standard memory aids: CBS, which stands for 'Comparable Better, Subtract,' and CIA, which stands for 'Comparable Inferior, Add.'

The resulting adjusted sale price of a comparable reflects what that comparable would have sold for had it possessed the subject property's characteristics. To produce reliable results, comparable properties should be recent arm's-length sales located in the same competitive market area as the subject property. A licensee may also examine active, expired, and withdrawn listings. Active listings illustrate current market competition but do not establish realized market value. Expired and withdrawn listings may provide context about asking prices, but they do not prove that a property failed to sell because its price was too high.

Once adjustments are completed, a licensee reconciles the adjusted comparable values using weighted professional judgment rather than a simple mathematical average. Ultimately, while the licensee provides guidance and market data, the final decision on the listing price belongs solely to the property seller, not the real estate licensee.