3 ways to value your home
One of the biggest mistakes sellers make is pricing their homes too high. Buyers are generally well educated and won’t consider a listing too expensive. After the property is stuck on the market, the seller will slowly wake up to reality and lower the asking price to a more realistic figure. The downside of this scenario is that one has lost valuable marketing time in the meantime.
The longer a listing remains on the market, the less attention it receives. The lesson here is: price your home accurately from the start! To help you determine that value, you can use one of three commonly used valuation methods: a Comparative Market Analysis or “CMA”, a Broker Price Opinion or “BPO”, also called a Broker Opinion of Value, and a formal appraisal, performed by a licensed and certified real estate appraiser.
Before going into the details of each of the valuation methods, let’s talk a bit more about the different types of securities.
Market value
The Uniform Standard of Professional Appraisal Practice (USPAP) defines market value as the most probable price a property should sell for in a competitive and open market. This assumes that all the conditions for a fair sale are present and that the buyer and seller are of sound mind.
value as is
In general, current value is defined as the value of the subject property as it currently exists without repairs or improvements. The as-is value must reflect the current condition of the property in question.
repaired value
Repaired value is generally defined as the value the subject property would sell for if the subject property were move-in ready, but not overly improved for the neighborhood.
quick sale value
Quick sale value is defined as the value that the subject property would sell for in terms of liquidation or forced sale. Quick sale value typically assumes limited exposure to the open market and restrictive selling conditions.
1. CMA Market Comparative Analysis
A CMA is a comparison of the prices of similar homes in the same general geographic area, typically a one-mile radius. Typically, MLS data and tax records are used to conduct the investigation. Includes: 1) Closed Sales: Properties that have sold and closed in the last 6 months, 2) Active Listings: Properties currently for sale, 3) Pending Sales: Listings that are under contract but have not yet closed, and 4) Expired Listings: Properties that did not sell during the listing period. After careful analysis of this information, a probable sale price is suggested.
Because the price derived from a CMA is somewhat subjective, the result typically results in a price range rather than a defined number. Most agents will perform a CMA without physically visiting the property. In general, a CMA prepared by an experienced agent with good knowledge of the local market is in line with the appraised market value of your home. Therefore, a CMA can be a very useful tool. Most agents offer this service free of charge as a promotional means to gain your business.
2. BPO Broker Price Opinion (also Broker Value Opinion)
A broker price opinion is when a real estate agent or broker will make an appraisal of a property similar to an appraisal. There are two types of BPO: an exterior or drive-by and an interior or full BPO. For our purposes, I will focus on the in-house or complete BPO, as it is the most complete and most valuable to a vendor.
The Broker’s Price Opinion has been a popular tool used by lenders and mortgage companies to appraise properties in situations where they believe the expense of an appraisal is not necessary. A BPO goes into much more detail than a CMA; the specific purpose of the BPO as stated by the client will dictate much of what the agent focuses on. In addition to the work done at a CMA, the agent will typically perform a complete inspection of the property and list any defects and recommend any necessary repairs. A detailed commentary of the material issues will be included.
Photos of the interior and exterior are taken and included in the report. Three recently sold comparables and three active listings are used to determine the value of the subject property, adjustments are made if necessary. The cost of a complete interior BPO ranges from $85.00 to $165.00, depending on the detail that the client wants. Listing agents typically charge for this service, but in some cases, they may credit the fee to the client upon successful closing of escrow.
3. Formal evaluation
A formal appraisal is by far the most detailed appraisal tool used to determine a property’s value. Appraisals are most often reported on a standardized form, and only licensed and certified real estate appraisers can perform an appraisal. Authorized appraisers are trained to be able to appraise real estate in various ways;
The sales comparison approach (same as CMA or PBO) is by far the most common, where comparable properties are used to determine subject value.
The Income Approach: This method is most commonly used to value income-producing properties, such as offices and apartment buildings. In some cases, depending on client requirements and/or the specific type of property, appraisers may use a combination of the sales comparison approach and the income approach to determine value.
The Replacement Approach: This method is most commonly used in newly built houses, where there are no established comparables, in houses built with unique materials for which no comparables exist, or, in the event of, say, a fire, where there is no remaining nothing to compare.
The cost of a formal residential appraisal generally ranges from $300.00 to $450.00.
4. Closing
The reason to hire a professional to appraise your property is to get accuracy. It is strongly recommended to start with a realistic price tag, and to do so, the seller must obtain an accurate estimate of the value of the property in question. This will set the tone for a smooth and productive sales and marketing process.