UPDATE: 03/07/2022 I wrote this article originally just to discuss the different types of real estate valuations. In hindsight I should have gone into when to use each type of valuation.
AVM: Feel free to look at AVMs for entertainment value only. They are not accurate unless you're looking at an average tract home in a tract development of average quality, condition properties with no views in the flats which was built more recently. Even then they are not specifically accurate. The location in the development matters.
AVMs are not accurate with older homes, homes with views, upgraded homes in better than average condition, homes in less than average condition, homes on the edge of two very different neighborhoods, custom homes, homes on sloped lots, homes on odd lots like flag lots...anything out of the ordinary. If you have an upgraded home in great condition, AVM will probably be lower. If you have a home in horrible condition, AVM will probably be higher.
VALUATION: Valuation are generally for lenders so it doesn't concern the lay person homeowner.
CMA, BPO: These are generally just to get a range of values to list your property for sale. Back in my day you would list your property no more than 5% over current market value. If you list too high, you will lose potential buyers. If you list too low, you'll get a confusing bidding war.
DESKTOP: There is no interior or exterior inspection. If your home is in great condition and fully upgraded, the value will come in lower. If your home is in horrible condition, the value will come in higher.
HYBRID: While a person takes photos and measures the interior of the home, they are not the appraiser who writes the report. The appraiser has not seen the home, the neighborhood or the sold comparables. The appraiser will most likely be more conservative. If your home is in great condition and fully upgraded, the value may come in lower. If your home is in horrible condition, the value may come in higher.
FULL APPRAISAL: The actual appraiser sees the interior/exterior of your home, the sold/listed comparables and has driven the neighborhood. They have the best feel of the actual value of the home. If your home is upgraded in good condition, you will get full market value for those improvements. Market value is the market's reaction to the improvements. If you installed a gold toilet and $10,000 worth of rare fruit trees, you won't get added value for that. If you added a new room and bathroom, you will get added value for that though it may not be the full cost of the addition. Not all improvements give 100% return on value. Some give more and some give less.
If your home has a view, is on a slope, is a custom home, is in great condition, has lots of upgrades and is in a good specific location in the neighborhood (on a cul-de-sac at the top of a hill), you will get a higher valuation with a full appraisal. If your home is in fair condition, has issues, is in a bad specific location in the neighborhood (facing the alley, near industrial, next to a tall apartment building), you will probably get a lower value than a desktop/drive-by.
I've recently had homeowners tell me they had a drive-by, desktop or hybrid and the value came in what they felt was low. The lender prefers the drive-by, desktop, hybrid because they're cheaper for the lender. The borrower is still paying the same appraisal fee in the cost of the loan whether they realize it or not. The owner then ordered a full appraisal and the value was higher. The value was most likely higher because all of the main factors of value i.e. quality, condition, location, view... could be seen and known by the appraiser. A great view can add 20% to the value of a home. Choose the type of valuation you need.
ORIGINAL 10/05/2021: From the National Association of Realtors. I agree with their brochure, definitions and chart. I was a Realtor for many years when I also worked as a broker. I added the cost of each on the bottom.
YOUR HOME IS AN INVESTMENT. KNOW ITS VALUE. BE AN INFORMED HOME BUYER.
The appraiser is the independent, impartial, and objective professional in the mortgage transaction. An appraiser develops an appraisal which is a credible, reliable, and supported opinion of value. An appraisal is typically used by the lender in a home purchase transaction; this assists in the lender’s decision to provide funds for a mortgage. While the lender is technically the owner of the appraisal, as a borrower you still have certain rights:
• You have the right to obtain your own appraisal, even if you are paying cash for a property.
• You have the right to know what type of valuation service is being ordered for your loan.
• You have a right to make an appraisal a contingency in your sales agreement.
A home purchase is typically the largest investment someone will make. Protect yourself by getting your investment appraised! The appraiser will observe the property, analyze the data, and report their findings to their client. The client may be the lender, borrower, or other third-party.
An appraisal ordered by a lender is for the benefit of the lender to ensure that the collateral they are using to securitize the loan is sufficient. An appraisal is not a home inspection. While all appraisals are valuation services, not all valuation services are appraisals.
|
Product |
Appraisal Report |
Hybrid or Bifurcated Appraisal |
Desktop Appraisal |
CMA or BPO |
Evaluation |
Automated Valuation Model AVM |
|
Source |
Appraiser |
Appraiser and/or Non-Appraiser |
Appraiser and/or Non-Appraiser |
Broker or Sales Agent |
Non-Appraiser |
Computer Generation Algorithm |
|
Definition |
An opinion of value that is developed by a licensed appraiser in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). It is an unbiased, independent, objective, impartial, credible and reliable opinion of value. |
A third-party performs the property inspection and provides the information to the licensed appraiser who uses this information, as well as other data, to complete the appraisal in compliance with USPAP. |
A valuation performed without an interior or exterior inspection of the property by an appraiser or any 3rd party. All research is based on information from tax records, MLS data and other reliable sources. |
Comparative Market Analysis, or CMA –Commonly prepared by a real estate agent to help their client determine a reasonable listing or purchase nprice for a property. CMAs do not comply with USPAP. Brokers Price Opinion,or BPO – Commonly prepared by a real estate broker to determine price (not value), BPOs are traditionally associated with short sales, foreclosures and/or relocations. BPOs do not comply with USPAP. |
Evaluation – An opinion of value for use by a lender. An evaluation does not have to comply with USPAP and does not have to be completed by a licensed appraiser. |
An AVM is a mathematical model which estimates real estate property value. AVMs were designed to speed up the valuation process and reduce costs. Using algorithms and previously collected information, a value estimate is computer generated. Results may not be credible if adequate and relevant data is unavailable. An AVM is an evaluation, which is not an appraisal. Both Fannie Mae and Freddie Mac offer AVM- based valuations. Lenders may refer to this as an appraisal waiver. Borrowers have the right to reject the waiver and request an appraisal report. |
|
Level of Inspection |
INTERIOR AND EXTERIOR INSPECTION BYvAN APPRAISER |
INSPECTION BY AN APPRAISER OR A THIRD PARTY |
NO INSPECTION |
MAY OR MAY NOT HAVE INSPECTION BY APPRAISER |
NO INSPECTION |
NO INSPECTION |
|
Level of Valuation |
Most Comprehensive |
|
|
|
|
Least Comprehensive |
Costs
The first three cost money and the last three are free. A full interior/exterior inspection appraisal by a licensed, real estate appraiser is about $350-$550 but could be higher if it's a large, custom home. You receive a full report with measurements, photos and the valuation. Hybrids are supposed to be cheaper but they seem to cost the same and don't save time for anyone. A desktop appraisal runs about $300-$400 but could be higher if it's a large, custom home. Two to four units, apartment buildings, raw land, commercial, retail, warehouse, industrial property, business appraisals ... cost more. My price list is in my website http://marycummins.com/price.htm . I charge less than most. The average for Los Angeles, California for an average size home is $350-$500 per this survey as of September 2021. Lenders generally charge more as they have to pay the AMC who pays the appraiser. The AMC keeps part of the fee which is why it costs more.
CMA and BPO are okay if you know and trust the real estate agent and just need a range in order to list the property. I've run into a few who intentionally listed the property low to sell to a friend or double end the deal to get both the buyer and seller's commission. While there are a few scammers in every profession there are many reputable agents out there. Ask your friends.
AVMs are okay if you are only looking for a wide range, ballpark figure for curiosity sake. They admit they are not reliable for homes at the lower and higher ends of the price, size, condition and age ranges. They may be okay for a newer average sized tract home or condo in good condition.
Link to NAR brochure in pdf format.
https://cdn.nar.realtor/sites/default/files/documents/valuation-appraisal-for-homebuyers-12-2020.pdf
Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.
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