What is the difference between an Appraisal, a Market Analysis and a Broker’s Opinion, and when, where and why do you use them?
We are all familiar with the term Appraisal, defined pretty simply as: A valuation of a property. When a buyer is utilizing financing to purchase a property, the bank lending money to purchase will often order an appraisal to determine if the purchase price on which the buyer and seller have agreed is within the range of market value for the property. An appraisal is ordered by the buyer’s lender, paid for by the buyer and conducted by a Licensed Appraiser. In this case the appraiser has a copy of the buy sell agreement and knows the price at which buyer and seller have agreed. Their job is not to blindly evaluate the property but instead determine if the price agreed upon is reasonable in comparison to other recent sales in that general location. Seldom do we see an appraisal done by the seller prior to marketing a property for sale because a lender will not accept this appraisal and will instead order their own, so a seller often feels ordering an appraisal themselves early on in the selling process is an unnecessary expense.
So, how does a seller determine the price at which to market their property if they don’t first order an appraisal? When listing a property for sale, a real estate agent will develop a Market Analysis also known as a CMA. This is an assessment of the current market value of a property based on prices at which similar properties in the same market have sold. If your agent is very familiar with the market and has access to a wide range of comparable sales, this value will be quite accurate and will look very similar to an appraisal. The seller is always in the driver’s seat and will ultimately determine the price at which they would like to market the property, but it’s helpful to start the pricing conversation with a Market Analysis.
A Broker’s Opinion or BPO is created through a process similar to a Market Analysis and is often ordered to establish a value for an estate. The final report does not include a description of comparable sales used as an Appraisal or Market Analysis does, but instead is a written document detailing the Broker’s Opinion of the value of the property and supporting evidence for arriving at that value. A Broker’s Opinion is often ordered by an attorney, accountant, owner or owner’s heirs and can but does not always involve the sale of the property.