What’s the Difference Between an Appraisal and a Broker’s Price Opinion

A.B.C.D. Real Estate Services provides both Real Estate Appraisal Services and Real Estate Brokerage Services. While our market knowledge aides us in both arenas, these two types of services are unique and distinct services. Due to potential conflict of interest issues we cannot provide both services on the same property.

Our Appraisal Services require impartiality. These services are provided to a customer, and require the appraiser to provide an impartial opinion with no fiduciary duty to the customer.

Our Brokerage Services are provided to a client to whom we have a fiduciary duty which include:

  1. Obedience: The Broker cannot exceed the authority given by the client and must follow all lawful instructions.
  2. Loyalty: The Broker must put the client’s interest ahead of all others, including the Broker’s interest.
  3. Disclosure:The Broker must disclose affirmatively all information concerning the transaction which might affect the client’s best interest.
  4. Confidentiality:The Broker cannot disclose confidential information of the client to others.
  5. Account:The Broker is required to promptly report all money received and paid out and, upon request, to render an accounting and return all money and property to the client.
  6. Reasonable Care:The Broker is required to protect the client from foreseeable risks of harm; exercise care and competence to ensure the transaction of business to the best advantage and to recommend expert advice or assistance when the client’s needs are outside the scope Broker/Client relationship

 

What’s the difference between an Appraisal & a Competitive Market Analysis (CMA)?

An appraisal is a formal opinion of Market Value provided by a licensed or certified real estate appraiser as of a specific point of time known as an “effective date” for a specific purpose (also known as the “intended use”). The effective date may be the day the appraiser inspects the property or as of a retrospective or prospective date. An appraisal is an independent 3rd party opinion which requires impartiality towards the results and the property owner. This opinion is supported by market research and analysis of neighborhood data including: demand; recent sales; listings; expired & cancelled listings; rental rates; rental demand; land value; construction costs; proximity to schools, shopping, and transportation; employment rates; environmental concerns; etc.

A CMA, sometimes referred to as a Broker Price Opinion (BPO), is a less formal analysis of market trends used by a real estate agent or broker in order to help a seller set a reasonable asking price or a buyer make a reasonable offer. While an appraisal is a detailed report which often contains 25-40 pages in the report, a CMA is a less detailed report which is often less than 10 pages in length. CMA’s are a useful tool for an agent/broker to help their seller set a reasonable expectation for the sale by understanding current neighborhood conditions. The CMA often includes recent sales of similar homes in the neighborhood, as well as current listings of similar homes. Understanding the relationship of current inventory levels versus absorption rates (how long it will take to sell the current inventory based on current demand in the area) will allow a seller to set a reasonable asking price based on their desire to sell. A seller who needs to move quickly may choose to price their property more aggressively than someone who wants to sell, but is more flexible with no specific time table for a move.

For some unknown reason, proper training on how to analyze market data is not incorporated into the educational requirements to obtain or renew a real estate sales or broker license. Contrary to popular belief, there is no book of adjustments which states a bathroom is worth “X” or a garage is worth “Y.” You’ve probably heard the saying real estate is all about location, location, location. Because markets vary, these adjustments must be extracted from the market by using paired sales analysis or other techniques, and many agents simply lack the training required to complete such an analysis. As a result, many agents do not know how to properly prepare a CMA, and these reports should not be relied upon for anything other than establishing a listing price or offer price.

One comment to What’s the Difference Between an Appraisal and a Broker’s Price Opinion

  • Butch  says:

    The truth just shines thorguh your post

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