Calculating Home Value: What Will Work For You?
By Paul Esajian on December 30, 2013
In today’s market, there are three approaches that can be taken to determine the estimated value of a property: a comparative market analysis (CMA), a broker price opinion (BPO) and an appraisal. The CMA and BPO are both performed by local realtors or brokers while an appraisal is done by a certified appraiser. Depending on which stage of the buying or selling process you are in will dictate which one of those options is best for you.
If you are looking to get an idea of a value before you make an offer, your realtor can write up a CMA. This is done by looking at current and past properties that are either active or have sold in the last 30-90 days. Your realtor will compare the subject property to ones that have sold by age, style, location, price, size and features. Deductions or additions will be made based on what the subject property has in relation to comparable properties. There is not an exact amount used for an extra bedroom or a fireplace. Each feature’s value is at the discretion of the individual assessing it.
A BPO is typically ordered by a lender that is considering listing or selling an out of area property. They will enlist the services of a local realtor to come up with their estimate of fair market value. They will use much of the same items as the CMA and obtain their data through the multiple listing service and tax records. Since the BPO is done without a specific price in mind, the BPO number could be quite different from realtor to realtor. Some may use comparables closer to the subject property, but have closed close to 90 days ago. Others may deduct value based on a distressed property sale in the area. A BPO is a quick evaluation and usually the first step in the listing process.
The appraisal is a much more accurate determination of value. This takes the big picture of the exterior and interior of the property in mind. Sales and similar data for a CMA or BPO are used, but with an appraisal, the condition of the property is noted and accounted for. If the bathroom has been redone and updated, this will be reflected in the value. The same goes for any upgrades or negatives associated with the property. One of the knocks on appraisals was that the mortgage company and buyer who ordered the appraisal had too much influence on the value. Lenders now control the appraisal process and hold appraisers to a much higher standard than in years past. No longer is it a guarantee that the value will come in at the purchase price. Many deals have been slowed or even ruined altogether by appraisals coming in at lower values. At that point, the buyer can either bring the difference to the closing or the seller can lower their value. Neither option is very attractive.
All appraisals are an estimation of value in any given time. Ultimately, the market decides how much a property is worth by finding a price that the seller and buyer agree on. Use as much data available as you can to get the most accurate estimation possible.