Entry 2304.4 - 10 Tips For A More Competent CMA or BPO

10 Tips For A More Competent CMA or BPO

If you are not already familiar with 93A-82 & 93A-83 of the NC Real Estate License Law and

you elect to provide a client or customer a CMA or BPO, you need to be familiar with this

portion of Real Estate License Law. The Statute encompasses the portion of the NC License

Law (Article 6) that legally defines what a CMA and a BPO is and what it must include. By

definition a CMA or BPO “Mean an estimate prepared by a licensed real estate broker that

details the probable selling price or leasing price of a particular parcel of or interest in

property and provides a varying level of detail about the property’s condition, market, and

neighborhood, and information on comparable properties, ….”. Additionally, the NCREC

adopted rules which specifically apply when brokers are developing a CMA or a BPO (Real

Estate Commission Rules A.2201 & A.2202). When preparing a CMA or BPO brokers must

be in compliance with the Real Estate License Law and Commission Rules.

Assuming a broker has followed the above advice, then brokers simply must plan to be

competent when developing a CMA or BPO. Being competent is fundamental to every

aspect of real estate brokerage and it applies to EVERYTHING brokers do, including

preparing a CMA or BPO.

Here are my top 10 tips for preparing a more competent CMA or BPO:

1) Obtain quality data, which begins with the listing broker’s property inspection. Be

careful, consistent, and competent about data collection on every listing. Quality data

collection on the listing allows you to tell a complete story about the listed property.

2) Quality data then expands to quality comparable data. Obtaining quality comparable

data should include more than just 3 comparables, because you don’t yet know which

3 (or more) are the best comparables (i.e., the most similar to the subject property).

3) BTW, the selected comparables are also the comparables which are the most recent

closed sales (“Time” matters). Sometimes, due to lack of closed sales, a broker may

find they are comparing against pending sales, contingent sales, or even active

listings. For a CMA or BPO, this is an acceptable practice, and the broker’s client may

even insist they are included (like with a property whose seller is being relocated).

4) Review the quality data (the super set of comparables), now select at least 3

comparables which are the MOST similar (similarity can include many attributes

which can be adjusted on (BR’s, BA’s, Living Area, Garage, Basement, Decks, acreage, etc.). Selecting the comparables that are the most similar is the key to a

quality CMA or BPO.

5) BTW, review the comparable data includes reviewing 100% of the data a broker

retrieves from their MLS, including photos, deeds, plates, tax records, & a drive-by. A

broker’s direct conversation with another broker’s previous sale can be invaluable. As

a famous saying goes, “Trust but verify” is the best practice for a broker to follow.

6) In determining which are the BEST comparables there are also some do-not’s: Don’t

use a comp with below-grade space if the subject doesn’t have below-grade space,

don’t use a 2-story comp if the subject is a one-story, don’t use a new construction

residence when comparing an older residence, etc.. The bottom line is always

compare apples with apples (at least as close as a broker can possibly find that

recently closed).

7) BTW, size matters. Select comps that are as close in size to the subject property as

are available (similar # of BR’s, similar # of BA’s, similar # of stories, similar # of living

area, similar site size, similar topography, similar creek/lake frontage, etc.).

8) Select comparables that are also proximate to the subject property as are available

(or at least as proximate as possible), and proximity still needs to be as recent as

available.

9) The $64,000 question is always “how much of an adjustment is correct”? There is no

chart, table, or secrete-handshake for such an amount. As an example, an

adjustment of number of BA’s in a super high end neighborhood is NOT the same as

in a starter home. So, the market will dictate what the market will pay for those

differences. Experience will help a lot, but in the meantime, be friendly with a local

appraiser and don’t be afraid to “Ask” for help or insight in advance of any

recommendation on “Probable List Price or Probable Sale Price” and before the

NCREC gives you a call.

10) The final step in the development of a competent CMA or BPO is the Reconciliation

process. The short answer to reconciliation is that the comparable(s) which have the

fewest adjustments (including the smallest % adjustments is usually the most

comparable and therefore a brokers will weigh that comparable more heavily in the

brokers final reconciliation of “Price” (it is NOT Value, NOT Worth & NOT Appraisal, its

Probable Selling Price or Probable Listing Price).

Plan to be competent in your brokerage practice when developing a CMA or BPO.

The above does not constitute Legal Advice. Therefore, find a competent attorney for legal advice.