Nov
30
The value of your home or other real estate assets is viewed by many different people, and in different ways.
Hopefully this article will help you to understand the differences between them, and to help identify what’s the most important to you.
There is the tax assessors view, commonly known as the Tax Assessment, which may not be based on the sales price or current market value! This value starts out when the property is placed on the tax rolls, or sub divided from a larger parcel. The municipality has set this value of your land and any improvements that may be on it, based on the surrounding property, its current & potential uses. The municipalities typically adjust this basis when they need more revenue, or the property is improved and/or rezoned. Annual assessments are sometimes based on the tax zone or location, sometimes they may be done citywide to generate more revenues. They may or may not be a direct reflection of the property value, however based on the neighborhood or surrounding property’s recent sales history. A good example of this is two identical homes, on the same street, they are both 30 years old, one has never sold, and the other has sold every 7 years. The tax assessments will not be the same as they started. The one that has sold has be reevaluated or reassessed when it was sold, and the other may not have ever had an individual review of its assessment, and only experienced the area, or city with tax increases every couple of years, etc. So, even though every property owner gets the “Annual” assessment from there respected municipality, it’s not a re-evaluation of your property, merely a tax bill that has been sent to the mortgage company! Some properties & neighborhoods are over assessed, and a few are under assessed, and it can be challenging to get the municipality to give up, or reduce your tax bill without concrete evidence of its market value, i.e. a recent sale!
Most Real Estate Agents rely on a self-generated CMA or Competitive Market Analysis, or sometimes called a Comparative Market Analysis! Is there a difference? Some people and even some Real Estate Agents think they are synonymous! However in my opinion they are far from it! Yes, they may both have nearby properties that look like the subject, but are they truly comparable? Does one back up to the main road and the other on sit by the lake? Is one updated with new electrical panel and the other still have fuses? Is one a ranch and the other a two story home? I one being sold “As-Is” or recently flipper? Is one a short sale (Distressed Seller) and the others a true arm’s length transaction? Just because a house down the street sold, it doesn’t mean that it is a comparable property that should be used to determine your value! To help cut through this confusion, I now call my CMA a QMA = or Qualified Market Assessment. My QMA starts out as a typical CMA, and matures into a more Qualified Market Assessment, only using true sales comparable that are similar to my subject property, very much like that of the appraisal. As a Real Estate Broker, I have taken, and passed the Appraisers class, and understand the Uniform Appraisal Dataset that Freddie Mac & Fannie Mae use, and FHA will start to use in January 2012.
Another common source for value, however not known for its namesake is the “AVM” or Automated Valuation Models. They are just as they appear to be, a computer generated valuation based on limited criteria. Ever hear of Zestamites? It’s an AVM and collects the basic information from various sources, i.e. City & County tax records & sales history, then it generates a baseline to use as an average to calculate just that, an average value, based on average information. These models are handy; I even use one on my website to provide basic neighborhood values to my visitors. They serve a purpose, however are not very accurate, and I would not sell my home for the amount recommended by the AVM! Banks are a big user of AVM’s to help determine loan amounts on applications & refinancing, etc.
Then there is the “BPO” or Brokers Price Opinion. These are about the same as a CMA because they are typically done by a real estate agent. It is commonly requested by the lender once a mortgage goes into default, and to help justify a sales price on a short sale, or to help them determine if they want to proceed with a foreclosure. They are typically done on the lender provided form, and filled out by the beginner real estate agents. The lenders use to pay for these, but now they can find enough hungry real estate agents to do them for free, in hopes of getting the listing from the lender, if it does go to foreclosure
Most often, the most accurate way to determine the true value of real estate is the Appraisal = An Appraisal is just one person’s estimate of value, yet a licensed persons opinion, therefor it should be the most relies upon & accurate. As a licensed Real Estate Broker, I was also required to take the Real Estate Appraisers course, and have an opinion of value, just as the other appraisers in the class did. We will not always agree on the same value, or valuation process; however we were trained to use the same guidelines, and standards; however they are sometimes interpreted differently by the various lenders and underwriters. After all, an Appraisal is just one licensed person’s estimate of value, when in effect the true value is what a uninfluenced buyer and uninfluenced seller are willing to pay and accept for that Real Estate at a given time….. Yes, that is true value! So if a sale is negotiated between a buyer & seller, with no outside influence, or duress, i.e. Short sale, Foreclosure, Divorce, Bankruptcy, etc. that is its true value. However the mortgage companies insist on a written estimate of value based on the most recent sales of comparable properties. This is not as easy as you might think, given the roller coaster market we are experiencing today! Most appraisers are through in the initial inspection of the subject property, as they have always have been, however nowadays sometimes come up short on the selection of the comparable properties, and verifying that they are truly comparable. They typically just confirm that they are the same size and located in the same neighborhoods, and are just comparable, yet may not always be the most relevant or most comparable. I am seeing far too many distressed sales being used in a non-distressed Appraisal of Value today; hopefully the market will catch up soon, and relax the lenders purse strings, allowing all the valuation models to be a bit more reliable & accurate!
I hope this helps clear up the confusion on sources of value for you Real Estate.
Mark A Rusnak Associate Broker with RE/MAX ® Allegiance Licensed in Virginia for 20+ Years
www.MarkSold.com * MarkRusnak@REMAX.net * 757-718-8865
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