Ihab Salloum[ad_1]
One of the gravest errors made by sellers is setting the price of their homes too high. Savvy buyers, being well-informed, have no interest in entertaining an exorbitantly priced listing. Eventually, after the property languishes on the market, the seller will begrudgingly come to terms with reality and reduce the asking price to a more reasonable figure. Yet, this unfortunate scenario results in the loss of precious marketing time.
The longer a listing remains on the market, the less attention it garners. Thus, the lesson to be learnt is crystal clear – your home must be accurately priced right from the outset! To assist you in determining such value, three widely-used valuation methods exist: the Comparative Market Analysis or “CMA,” a Broker Price Opinion or “BPO,” also referred to as a Broker Opinion of Value, and a Formal Appraisal, conducted by a licensed and certified real estate appraiser.
But before we delve into the intricacies of each valuation method, let us briefly delve into the different types of values that exist:
Market Value
The Uniform Standard of Professional Appraisal Practice (USPAP) defines market value as the most probable price at which a property should sell in a competitive and open market. This assumes that all conditions for a fair sale are present, and that both buyer and seller possess sound judgement.
As-Is Value
Typically, the as-is value denotes the worth of the subject property in its present condition, without any repairs or improvements. The as-is value should accurately reflect the current state of the subject property.
As-Repaired Value
Generally, the as-repaired value signifies the price at which the subject property would sell if it were in a move-in, ready condition, without being overly improved for its neighborhood.
Quick-Sale Value
The quick-sale value is defined as the price at which the subject property would sell under conditions of liquidation or forced-sale. The quick-sale value typically assumes limited exposure to the open market, and restrictive terms of sale.
1. Comparative Market Analysis (CMA)
A CMA entails a comparison of prices of similar houses within the same general geographical area, usually within a one-mile radius. To conduct the research, MLS data and tax records are commonly utilized. The analysis consists of the study of: 1) closed sales – properties that have sold and closed within 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 marketing period. After a thorough analysis, a probable sale price is suggested.
Due to the relatively subjective nature of the price derived from a CMA, the outcome usually constitutes a range of prices rather than a specific figure. Most agents conduct a CMA without physically visiting the property. In general, a CMA prepared by an experienced agent with extensive knowledge of the local market aligns closely with your home’s appraised market value. Therefore, a CMA can serve as an invaluable tool. Most agents offer this service free of charge as a promotional means to gain your business.
2. Broker Price Opinion (BPO) or Broker Opinion of Value
A Broker Price Opinion involves a real estate agent or broker valuing a property in a manner akin to an appraisal. There exist two types of BPOs: an exterior or drive-by BPO, and an interior or full BPO. For the purposes of this discussion, I will focus on the interior or full BPO, as it is the most comprehensive and beneficial to a seller.
The Broker Price Opinion has enjoyed popularity as a tool used by lenders and mortgage companies to value properties when they deem an appraisal unnecessary. A BPO delves into considerably greater detail than a CMA; the specific purpose of the BPO, as established by the client, largely determines the areas of focus for the agent. In addition to the work done in a CMA, the agent typically conducts a comprehensive inspection of the property, noting any defects and recommending any necessary repairs. A detailed commentary on any material issues is included in the report.
Photos of both the interior and exterior are taken and appended to the report. The value of the subject property is determined using three recently sold comparables and three active listings; adjustments are made if necessary. The cost of a full interior BPO ranges from $85.00 to $165.00, contingent upon the level of detail demanded by the client. In many cases, listing agents will charge a fee for this service, but occasionally, they may credit the fee back to the client upon a successful close of escrow.
3. Formal Appraisal
A formal appraisal stands as the most meticulous valuation tool employed to ascertain the value of a property. Appraisals are predominantly presented on standardized forms, and only licensed and certified real estate appraisers are authorized to perform them. Licensed appraisers are trained to appraise real property in various ways.
The Sales Comparison Approach, which mirrors a CMA or BPO, stands as the most utilized method. Comparable properties are employed to ascertain the value of the subject property.
The Income Approach, predominantly employed in valuing income-generating properties such as office buildings and apartment complexes, involves the estimation of value based on income potential. Depending on the client’s requirements and/or the property’s specific type, appraisers may opt to use a combination of both the sales comparison approach and income approach to determine value.
The Replacement Approach, typically utilized for newly constructed homes lacking established comparables, or for homes made of unique materials that lack comparable homes, or in instances of, let’s say, a fire, where there are no physical structures left to compare.
The cost of a residential appraisal generally ranges from $300.00 to $450.00.
4. Conclusion
The rationale behind hiring a professional to value your property lies in acquiring accuracy. It is strongly advised to commence with a realistic price tag, and to ascertain such a figure, a seller must obtain an accurate estimate of the subject property’s value. The exercise paves the way for a smooth and fruitful marketing and sales process.
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