Valuation and Market Analysis
Value is not the same as price or cost. This topic explains the principles of value, the three approaches to appraisal, and how licensees prepare a comparative market analysis to guide pricing.
Principles and Approaches to Value
Market value is the most probable price a property should bring in a competitive, open market. Key principles include supply and demand, substitution (a buyer will pay no more than the cost of an equally desirable substitute), and highest and best use. Appraisers use three approaches: the sales comparison approach (comparing similar sold properties), the cost approach (land value plus the depreciated cost to rebuild improvements), and the income approach (based on the income a property produces).
CMA vs. Appraisal
A comparative market analysis (CMA) is an opinion of value prepared by a licensee using comparable listings and recent sales to help a seller set a realistic list price or a buyer make an offer. It is not a formal appraisal, which must be performed by a licensed or certified appraiser following the Uniform Standards of Professional Appraisal Practice. Licensees must be careful not to present a CMA as an appraisal.