All three of these terms are getting heavy play in this real estate slump so here's a quick overview from our perspective.
An appraisal in the formal sense can only be done by a licensed appraiser who is registered with the state and his professional association. Buyers normally pay for one as a condition of getting the bank to loan them the purchase money. Obviously the lender does not want to loan more than the home is worth and in fact inflated appraisals were one of the infection sites in the crash ___ crooked buyers made deals with bent appraisers to overstate the value so the bank would lend more than the home could sell for and the buyers would walk off with the cash difference, paying off the appraiser in the doing.
Now though appraisers are under tight scruitiny and the vast, vast majority are taking extra steps and trouble to insure their appraisals are bulletproof. This requires enormous skill, time, and experience and thus the result is the only one the lenders will accept. It is by far the most accurate and current measure of the market capturing as each one does even foreclosure prices.
A Brokers Price Opinion on the other hand is at the opposite end of the scale, often comprising no more than driving by a home and guestimating value. BPO's are the down and dirty, off the cuff estimate of home value used primarily between real estate offices to decide asking prices for homes that are abandoned or given back to a lender. In this increasingly more common situation cost is king ___ the lender is stuck with the place and does not want to spend any more than it has to so an appraisal does not matter until a buyer comes along and HIS lender needs to see how much the place is worth.
CMA stands for comparative (or sometimes "competitive") market analysis and involves an agent researching sales on the local Multiple Listing Service, or MLS. Sales have generally been considered the golden ruler when it comes to what home value is. After all, what a willing and able buyer paid should be the home's value, right? But the trouble now is that foreclosed homes are not on the MLS because they go to auction and they were not "listed" on the MLS in the first place. So a CMA won't show the (increasing number of) sales because they are off the MLS radar.
Appraisers can catch this though and that's why their work is worth the two or three hundred bucks or so that they charge. Some sellers are even starting to buy their own appraisals before even listing their home with an office although the figures are almost always less than what the agent's CMA will show and thus sometimes discouraging.
As will all these posts on real estate never take these opinions to the bank. Always, always see your personal tax, legal, or real estate professional before acting.
1 comment:
Your article has some good points, but is completely off base about foreclosures. Foreclosures MUST be listed on the MLS and offered to the general public, and thus are used as comparables and in appraisals, as directed by Fannie Mae and Freddie Mac.
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