CMA Logic and Lack There Of!

You can make numbers tell any story you want.  The government does it all the time.

Comparable selection is an art, not a science.  If it were a science, Appraisers would have been out of business years ago and replaced by computer programs.

Nice picture.  It got me way off track in my thinking.

Jim - Very interesting.  Statistics are always fun to analyze and read.  Last year, my board had a headline stating "Fifth best June ever!!".  What that meant is that it was the worst June in the past five years since in older years, the population and number of houses available in the market was substantially lower.

Interesting information, I also love statistics.  I think doing CMA's is part science and intuition.

Stats, commonly known as statistics, can really be helpful. Or, they can be misleading. I guess it depends on how you look at it!

I'm a statistic fan myself....I guess since 80% of my clients are engineers, that's a good thing :)  Rarely do I throw all of the market in one pot when doing studies.  I like to break it down in to small catagories so I can better pin point the true numbers.

If one knows a market inside out, upside down, etc., and does a very detailed analysis, it's pretty easy to get a fairly realistic price to start with.  Buyers determine value.  The interplay between price-condition-demand will determine wthe final price as dictated by a buyer and relevant comparables and current competition.  Most data sets for comparison are too small in # (which makes a lot of stats irrelevant) and the properties chosen from this too small set can make it even more problematic.

Jim,

Great post and I want to start by honoring a great mentor of mine, Seymour Schwartz - as Jewish stereo-typical businessman as you could ever write in a novel or a screen-play.  He taught me a lot as I transitioned from military life to the world of business. Your final quote about figures and lying was something I heard every day from him...so trust me, I understand exactly what you are saying in this post.

When I do my market reports I too find the general data to be so off.  I break down the transactions by type of transaction; i.e. short sale, REO, Standard, etc.  Then I break down each of these types by financing type.  So Short Sales many be dominated with Conventional Loans and REOs with FHA.  Cash Buyers may be securing properties for 98.27% of list price where VA buyers are paying 110%.  To say the typical (average, median, or enter your own salesy word) property is being transferred for 103.5% of List Price means nothing.

Thanks for this great look at the way our market is reported.

John

hmmm I think you should provide a link for that Victoria's Secret catalogue...:-)

This post makes you think about the value of stats and how they can be skewered...thinking this one over.....

Thanks for a post supporting stats and the responses on how they can be used.  The other day there was a blog about how worthless they all are.  They are only as good as the information you put into them. 

For the CMA I am looking at them more, but not as, critical as an appraiser.  I try to incorporate Gross Living Area and not square footage into the mix.  Takes more time and only works with homes I have previewed or have additional information on but it gives a better indication of value in my eyes.

Jim:

Statistics are interesting but I think there is so much more that goes into the valuation of what to actually offer for a property. As in, what else is out there competing with it?  I usually prepare two different types of CMA's to try to give as much information as possible.

Garbage in, garbage out. I have been certified as an appraiser so I can understand what the appraisal valuation model is. I have gone through CCIM, which is statistical analysis intensive. I have 20 years of real estate experience and over 2000 homes transacted. I still emphasize the Estimate part of a CMA. I have not been in the houses, I cannot get the data for an exact comparison, if I don't have apprasial data I have to "trust" either the courthouse or even worse4, an agent saying what the SF is. I can find comps to make your home worth less, and I can find comps to make it worth more. The CMA is just one tool. meeting the clients needs, and making changes later a ccording to how the market reacts are others. In other words the CMA is not The Ten Commandments.

This is a very interesting post - I'm going to forward it to my supervisor as we were discussing CMA's just the other day.

THis is very interesting. I expecially like the compariso to victoria secret. If it was only based on size, we wouldn't give anything for their products.