Home Values: CMA, BPO, And Appraisals
There are many different ways the value of a home can be measured. The most common way is to make an attempt to quantify that value via a dollar amount. Even then, there are still many different ways to measure the dollar value. The tax man values it at one price while the insurance company gives it a different number. And rarely do tax or insurance valuations equal the current market value. Which can leave us hoping that a lender comes up with a decent appraisal value if we are trying to buy that same property. Wow! I’m not sure anyone but me actually knows the true value of my home (priceless) but they sure do have quite a few ways to guess at it. Let’s take a look at what all these different type of valuations are and what they actually mean.
The first thing to understand the value of a home is that it is often (except in the case of a CMA) assessed on two different factors. First, the value of the property (or land) is assessed for a dollar value. Then, the house itself is assessed for a dollar value. Finally, the two dollar amounts are added together to create the total monetary value of the property. (Keep in mind that, for total monetary value, “property” is the word most often used to describe the land and everything on it.)
The least complicated value (and the most relevant to buyers and sellers) is the current market value. This is a simple calculation that quickly and roughly compares one house in a neighborhood to other houses in the same neighborhood and/or the surrounding area which have a similar size (in square footage), sit on a similar-sized lot, have similar qualities (two bedrooms, three bedrooms, etc.), and have recently been bought or sold within the last year. This is what some of those website calculators offer up when they advertise that they can tell you how much your house is worth. The huge problem with those calculators is that they are not always up to date with the latest market information and, worse, they don’t actually know anything about your home.
A licensed Realtor® is going to be able to help you find the true value of a home through what is called a CMA or a Comparative Market Analysis. And they are going to get a more accurate estimate because they will have the most current market information to work with as well as being able to take into account things like repairs you’ve recently made that add value or extra amenities like a swimming pool or new garage being on the property. All the little details a real estate agent would cover can add up to literally tens of thousands of dollars being lost or overpaid because someone trusted a website instead of a professional.
The next type of value estimation that you might hear about is called a BPO (Broker Price Opinion) and it is very similar to a CMA, but it will be even more detailed than a CMA and may reflect a slightly different price because of the nature of its use. Often, if an insurance company or a bank (or other lender) doesn’t have a professional property appraiser on staff, they will hire a real estate broker (much different than a real estate agent) to go out and do a detailed assessment on a property for them. Perhaps the insurance company is taking on a new client and the company needs to know how much coverage the property qualifies for. Or maybe the property owner is looking to take out a second-mortgage on their home and the bank wants to know how much money to lend. Whatever the cause, a BPO is often requested when a concerned party wants to have a detailed appraisal done.
Now, in most states, only a licensed real estate broker or a state licensed appraiser are the people allowed to perform this type of appraisal. Further, there is a set of Federal guidelines known as the HVCC (or Home Valuation Code of Conduct) that can further restrict who can do these types of appraisals and even who can hire (or pay) someone to do these appraisals. This is especially true when certain Federal government entities might be involved due to special loans, special housing programs, etc.
At last, we should talk about taxes. Now, this one can be interesting because different states around the country use slightly different methods and formulas to calculate property taxes. The overall similarities between states is that they will often start with some sort of monetary value (market value, automated computer assessment, private appraiser, etc.), then multiply that value against a predetermined tax rate, and finally subtract any deductions that may apply to the property (such as being zoned in a historical area or being considered agricultural property) to reach the final number that will represent the taxes that are due. Some states only charge property tax once a year and some charge a smaller rate twice a year. But almost every property in this country is taxed in form or another to help fund things such as the local government, public school systems, and even the police and fire departments that protect these properties.
At the end of the day, the real value of a property is exactly what a buyer is willing to pay for it or an owner is willing to sell for. Taxes will always represent a much lower value of the property and insurance companies will always require the most detail about a property. But the true value of a home is something that only YOU can decide.
