So your sitting around the house and wondering about the current value of your home. After talking it over with your spouse and getting the input of a few friends you find yourself perplexed wondering about CMA's, BPO's and Appraisals. Just what are these three and what do they mean to you?
Lets take them on one at a time. CMA or the Competitive Market Analysis is a marketing tool that Realtors (R) have used for years. In fact it has become so common place that some real estate agencies such as the State of Oregon requires its use. In general the CMA is used by Real Estate agents to get a handle on and present to the Owner or perspective purchaser of real property your opinion of value.
Often times though the opinion of value is not all that close to reality in fact there are some agents who do the CMA with an eye towards getting a listing. Hence some CMA's may be over ambitious in terms of value. The direct evidence of this over exuberance can be seen in price reductions. How many times have you either called on a home or have seen the sticker put on the sign indicating a price reduction? Sure sometimes that price was strictly a Sellers choice, however it is my belief that it is our job to be straight forward with the Seller and not take listings that you will have to go back to the Seller later on for a significant price reduction.
BPO's or the Broker Price Opinion is a another form of evaluation. Often times the lending institution that has your property secured will ask for a current BPO. There reasons can be many. They could be asking because like most lenders they intend to sell the loan and the new lender wants a current assessment of value. They may also be asking because you have asked to refinance the home or to take out an equity loan. Of course they would also request a BPO if there was a request to Short Sale the property of if they thought a Foreclosure was in the wind. So then how does the BPO stack up against the CMA?
So unlike the CMA there is not an agent attempting to vie for a listing. Value for the BPO is much more realistic in terms of real value. As an active Real Estate Broker preparing hundreds of BPO's every year the things that I look at and are required by the requesting BPO company is a Realistic Value based on 3 current Active listings and 3 recent Sold listings within the immediate Subjects neighborhood. This often means within a mile of the property. The prices of the comps chosen also must be within about 15 or 20 per cent of each other. Other parameters are usually an age variance of less than 10 years and Square footage of the Main floor and upper floors total to be less than a 20 per cent difference. Lot size as well has a tolerance some companies will allow up to 40 per cent difference while others require the lot difference to be within 20 per cent. So the scope of the BPO evaluation is far more realistic and does not seek to see what is the highest value that you might be able to get like the CMA.
Appraisals on the other hand are the most Conservative of all. The appraisal is done by only a licensed appraiser and seeks to value the property for a lender to protect its value based asset. During the last several years during the collapse of the real estate market it was discovered the often times appraisals were done to help a lender and or Buyer achieve a sale. That action caused many homes to be valued higher than what there true value was. Because of the appraisers use recent values of opinions to value there sales it became a spiraling upward movement that was destined to fail. Because of it a whole series of new regulations were implemented with the intention of not allowing that to happen again. Hence today's Appraiser takes a very conservative approach to value. Some that may have come from the fact that there were serious repercussions to those previous Appraisers who had over escalated values.
So what does this mean for you? When speaking to a licensed Real Estate Broker like myself you will still be receiving a CMA but for me it will be one tempered towards the BPO because we all know that the final arbiter will be the Appraiser and his appraisal for the lender who has final say on the approval or denial of your sale no matter how much you or your Buyer may think your home is worth.