Relying on a CMA Adjustment Guide is a Risky Move

Comparative Market Analyses (CMAs) are frequently utilized in real estate valuations to estimate the value of properties. Some real estate agents (and appraisers) depend heavily on standardized “CMA Adjustment Guides” that provide predetermined dollar adjustments for differences between properties to aid in this process. However, as one anonymous appraiser passionately argues, "Appraisers distributing adjustment lists should be subjected to a reality TV intervention titled 'Extreme Appraiser Makeover!’” While this punishment is undoubtedly a wild response, the practice of overly relying on adjustment guides should be strongly discouraged within the real estate industry.

CMA adjustment guides like this above are unfortunately circulated and occasionally even unscrupulously sold to well-intentioned yet uninformed real estate professionals.

The appraiser explains his disdain: “If you are an appraiser who uses and/or distributes an adjustment list, throw it away immediately and learn how to properly support your adjustments.” He contends that such formulaic guides are “inappropriate and not supported by the market.” The amount that a specific feature adds in value “is based on how much the market is willing to pay for those features on that house and that property.” It varies greatly depending on the home itself and the surrounding market conditions.

Yet many real estate agents continue using these simplistic and standardized approaches. What are the potential downsides of over-relying on CMA Adjustment Guides when determining property values? Why does the appraiser so strongly oppose their widespread usage?

For one, the guides take an overly formulaic approach that overlooks the key complexities within real estate markets. As the appraiser notes, buyers do not “walk around with a list of adjustments” that informs how much more they’d hypothetically be willing to pay for certain features. Rather, home values hinge on a myriad of nuanced characteristics relating to the property itself, the neighborhood, market trends, buyer preferences, and more. By assigning blanket adjustments, the guides fail to account for the considerable qualitative value drivers.

The appraiser gives the example of a $60,000 pool adding vastly different value to a $100,000 property versus a $500,000 luxury home. The adjustment amount clearly cannot be standardized. Furthermore, “the same pool does not add as much value in a northern climate as in a southern climate” where outdoor features get more use. The guides make no distinction based on geographic norms.

This oversimplification of real estate’s complex nature can lead to vastly inaccurate estimates of property values. As the appraiser notes, buyers understand at an intuitive level that “a house with a pole barn costs more than the same house without a pole barn.” But by how much? That depends on the specific property, neighborhood, and market conditions. An automated guide cannot adequately capture those subtleties like a local appraiser could through a market analysis.

Most CMA Adjustment Guides fail to incorporate locational differences that enormously impact values. Real estate is susceptible to shifts block by block, or neighborhood to neighborhood, as hyperlocal attributes like school quality, proximity to amenities, transportation access, architectural aesthetics, and walkability can cause major valuation gaps between areas that appear geographically close. Standardized guides make little to no adjustments based on such granular locational factors. The result is that the figures can be significantly disconnected from the property’s true neighborhood context.

Making matters worse, most guides do not change over time even though real estate markets are constantly shifting. As a result, the predetermined adjustments quickly become outdated and inaccurate. As inventory levels, buyer demand, interest rates, building costs, and neighborhood marketability rapidly shift, basing valuations on outdated predetermined adjustments means the estimated values will likely be very different from what the property would sell for in today's market. A $50,000 kitchen remodel might have added $30,000 to a property’s value six months ago during a seller’s market, but perhaps only $10,000 in the present environment as buyers regain leverage. The appraiser would likely argue that only through understanding the real-time motivations of market participants can an appraiser credibly value or can an agent set accurate pricing.

Finally, standardized guides often overlook the special features that make properties unique. Key attributes like waterfront locations, scenic vistas, custom architectural details, or luxury materials can enormously sway valuations but get disregarded by formulaic adjustments geared toward generalized housing. Again, only through a nuanced property observation and comparison effort can such value-influencing characteristics get their proper accounting.

So while some might think that CMA Adjustment Guides provide a useful baseline, solely relying upon these generalized tools often yields inaccurate and unsupported conclusions. Employing a detailed comparable property analysis that accounts for unique influences on value, while avoiding blanket adjustments, is crucial for setting accurate and credible real estate pricing and guiding informed buying and selling decisions. In an industry filled with cookie-cutter approaches, truly successful real estate professionals embrace valuation methods tailored to each distinctive property.

Have you dealt with someone sharing or utilizing one of these standardized adjustment lists before? Share your perspectives and experiences below