BPO ADJUSTMENTS? BECAUSE YOU ASKED!
HOW DO BUYERS' AGENTS MAKE PRICE RECOMMENDATIONS? First, know the area!
Mike Martin asks for comments from ActiveRain members about "adjusting for BPO reports". Mike states: I'm Having A Problem Adjusting!
MIKE MARTIN offers a thoughtful discussion about adjusting for BPO reports. Mike's process for property price recommendation for BPO's is interesting because it relates directly to one of the important activities for Buyer's Agents. One of the first questions 90% of home buyers will ask of their agents is "How much should I offer?" The remaining 10% of home buyers simply state: "I not paying more than $____ for that house".
"HOW MUCH SHOULD I OFFER?" This question from a home buyer puts into action the process of a review of recenly SOLD area, including:
* A price comparison of recent SOLD properties to the subject property,
* Consideration of added value for the neighborhood, i.e.,
- public school ranking
- proximity to major employment areas
- increased or decreased price trends for the past several months
- relative condition of subject property
PRICE RECOMMENDATIONS ARE NOT A SIMPLE MATTER. If the home buyer is a first time home buyer, hopefully they're going to be relying on your advice. First time home buyers are a blank slate. You, on the other hand, have experience selling homes, previewing many homes in the area, a database with a wealth of pertinent information at your fingertips. YOU are the expert and have an awesome responsibility to, not only make a price range recommendation, but to expose the home buyer to the facts upon which you make that price recommendation. Home buyers who have purchased in the past, will have their own specific experience, but it may not be relative to the community, property or present day market conditions.
BPO's ARE GOOD PRACTICE. Not all agents have the opportunity to prepare BPO's. However, we all have access to homes for sale, Multiple list data reports and experience selling properties and reviewing the appraisals on which the buyer's mortgage company relied for value. Mike uses a formula like approach to determine value such as:
"Lot adjustments made at $1.00 per square foot on differences greater than 1500 square feet."
My experience (based on a review of many appraisals of homes sold) with lot valuation relates to the norm or average for the community. If a community was developed with an average 1/4 acre lots and the subject property happens to sit on a 2.5 acre lot, the additional square feet of the lot over 1/4 acre may be considered by an appraiser to be "excess acreage". Excess acreage doesn't have the same value per square feet or acre as the average lot in a community or area. When a property is on 7.5 acres in a one acre average community, just about all of the lot over about 2 acres will be value as "excess acreage". How often have you seen a property languish in the MLS because it's over-priced based on an over-valuation of the lot??
"Age adjustments made at $1,000 per year on differences greater than 10 years."
Age adjustments are interesting because they are often community specific. If 95% of the homes in the community including all of the recently sold homes were constructed 55 years ago and the subject property was built just 3 years ago on a "tear-down lot" an out-lot or recently subdivided lot, that newer home will offer added value, not necessarily by formula, but for newer systems, style, floor plan, amenities and condition not found in other homes in the neighborhood.
"Bathroom adjustments made at $2500 per half bath."
Where is the half bath located? Is it a half bath on the main level (Powder Room)? Or, is it a half bath in the basement? For Rambler/Rancher homes, it won't make a difference, but for two level homes and homes with basement foundations, it may.
IS THERE REALLY A FORMULA FOR PRICE VALUATION?? Mike says, I'm Having A Problem Adjusting! The one thing that I have learned over the years is that the formula for price valuation is that there is no formula.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
The homes above are similar in lot size, home size and area. However, the new home and the 15 year old home will have different price valuaitons.