BPOs, CMAs and Appraisals - Oh My!

Written by Posted On Thursday, 19 June 2014 13:44


Like many other industries the Real Estate industry has a raft of terms and acronyms, some of which can get confusing. During the depth of the recent recession the term BPO was used a lot. A Broker Price Opinion (BPO) is just what it sounds like – some broker’s (or real estate  agent’s) opinion of what the market value for a property is at some point in time. Many lenders had programs to pay local brokers and agents to do the research necessary to render an opinion of value on properties that they had foreclosed upon or which were undergoing short sales. They needed to be constantly updated, so that the asset spreadsheets upon which they were basing their decisions on offers could evaluate the exposure that the lender had at the time.  Some lenders imposed more rigor than others in the process, with some insisting that brokers/agents actually visit the comparable properties that they used to establish their opinion of the subject property’s value. For the most part the brokers and agents used sales data for houses that had sold within the last 90 days and within 2-3 miles of the subject properties. Some also allowed the use of comparable listed properties. BPOs also bake in the sales of foreclosed homes and short sales. BPOs are still being done, but with distressed sales down to below 15% in this area they are not seen as often.

The Comparative Market Analysis (CMA) is very similar to the BPO; it is the opinion of a Realtor® (usually an agent) on a market price for a house that the owner is considering listing. Agents use a process very much the same as for BPO’s. They try to find similar houses that have sold recently and which are fairly close to the subject property and they look at similar houses that are currently on the market.  CMA’s normally bake in the current appreciation rate and are thus a bit more forward-looking than BPO’s. Agents may choose to limit the houses that they use for comparisons to only those within the same school district, if being in that district is considered a feature that would impact a sale decision. During the recession Realtors reluctantly used the data from distressed sales if it was close enough to impact the sale of the subject house.

When doings CMAs, I am very careful to use the term “similar homes”, since I am basing the analysis on homes that I may not have visited and certainly don’t know well enough to make valid direct comparisons or adjustments. I look at size (Sq Ft), number of bedrooms and baths and other features or amenities to try to find homes within a reasonable tight search area that have similarities. If there are enough similarities I might go on to specify style (i.e. ranch vs. colonial), basement finish, land content or even school district to help sort out the best similar homes to use.  I tend to try to boil things down to averages and then try to place the subject home on a spectrum that includes its spot above or below those averages. The motivation for the CMA is to let the seller get a picture of the potential gain (or loss) from the sale of his house.

Appraisals tend to be much more rigorous and appraisers labor for hours over the details of each comparable house that they choose, trying to adjust their numbers for any differences with the subject house. They limit their Comps to an area as tight the around the subject house as possible and to sales that have occurred within the last 90 days, if possible. The current tight and slower market is giving appraisers fits trying to find the necessary Comps to render their opinion. Note that this is still an opinion, since none of these three valuation methods is an exact science and all involve some amount of “windage” correction by the practitioners. While appraisers note the direction in which value is changing (appreciation or depreciation) in the market, they don’t bake that into their analysis as much as a Realtor might. Appraisals are ordered by the lenders so that they can gauge their risk in making the mortgage. They want to know what they would get out of a sale of the place if they have a default within the first year or two and had to foreclose.

All of these valuation types have their place in the real; estate world as do a couple more that people often don’t think about – the assessed value and the insured value. Assessors tend to factor in things that some of the other models do not. The assessor often starts with an estimation of the value of the raw land upon which the house sits. He/she then estimates the value of the structures that have been added to the land. Assessors do use market data about the neighboring homes that may have sold within the last year. Assessors had to use all of the data within and market area, including the distresses sales that dragged down the values of entire neighborhoods.

The insurance industry takes a whole different approach to placing a value for insurance purposes on a property. They look at the cost to rebuild the property. In order to do that they have their agents visit and report back what they see. They are primarily interested in the quality of the build and the materials that they may have to reproduce in case of a disaster.  In some cases, such as with my old historic home in Milford, Michigan; it would cost quite a bit extra to be able to replicate the woodwork on a rebuild. So, my home, that might have an appraised value around $340,000 and a CMA market value around $375,000 right now, has an insurance value well above $450,000.

So now you have some frame of reference for those terms. They are all valid “values” for the property, just from different perspectives. What is the true value of the house? It’s what someone will give you for it today! There is no such thing as an intrinsic value on real estate. And that’s IMHO, which is another way to find the value.


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Norm Werner

Norm Werner is a Realtor at the Milford office of Real Estate One serving the southeastern Michigan area of Oakland and Livingston Counties. Norm specializes in residential real estate. Norm lives and works in Milford Michigan and is married to Carolyn Werner. Norm and Carolyn live in a historic home just three blocks from downtown Milford, with their two dogs - Sadie and Skippy. Norm specializes in the historic homes of Milford and the surrounding area and is on the Board of Directors of the Milford Historical Society. Norm especially enjoys working with first time buyers and those at the other end of the real estate spectrum who are downsizing into their retirement home. 

In addition to his Movetomilford.com web site, Norm also owns and m,aintains TheMilfordTeam.com web site, the HuronValleyRealtor.com web site. He is also the webmaster for and the MilfordHistory.org web site and the MilfordCar Show.com web site, as well as his church web site - Spiritdrivenchurch.com. In addition to blogging about real eastate, Norm has a personal blog - NormsMilfordBlog.com - on which he shares inspirational messages and the occasions personal observation about life. 


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