Get VALUE

 

Values

AVM – Automatic Valuation Model (or Method)

CMA – Comparative Market Analysis

Appraisals and Appraisers

Actual Market Value

Summary/Conclusion

 

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Values

 

 

Final Sales Value will depend on how much work you want to do to property and depending on your tax and timing circumstances how important it is to extract every possible dollar from the sale of your property.

 

The various types of property valuation methods commonly used in the real estate industry:

 

  • AVM – Automatic Valuation Model (or Method)
  • CMA – Comparative Market Analysis
  • Appraisals
  • Actual Market Value

 

AVM – Automatic Valuation Model (or Method)

 

Zillow is an example of “Automatic Valuation Model” because value is “automatically” determined by their software algorithms.  AVM calculations can be WAY off the actual market value of a property but can sometimes be fairly close like when valuing a “cookie cutter” condo complex where value differences are only decided by what floor, what view what interior condition.

 

So AVM can get you close, but a CMA will get you closer.

 

CMA – Comparative Market Analysis

 

A Comparative Market Analysis or “CMA”, is completed usually by an agent or broker as part of a value determination for a home owner or as a BPO (broker price opinion) for a bank that is attempting to value the asset.
A CMA is only as good as the skill of the CMA creator.  So often, the CMA value can be way off, but sometimes, it can be even closer than an official Appraisal because the agent or broker may have superior knowledge about the local market or property that an appraiser does not determine. 

 

Appraisals and Appraisers

 

Unless an appraisal contingency is waived in the purchase of a home, the appraisal will be a large factor in the final sale price of a property.  Even if a buyer is purchasing with cash, they often order an appraisal, and if the appraisal price much lower than their offer price they usually get anxious about their purchase price and often request a price reduction or seller credits of some sort.

 

The appraisal is the “official” value opinion for the property.   

 

Definition of “Appraisal”:

“Appraiser's opinion (not determination) of the current worth of a property based on factors such as area, location, improvements, and amenities. Generally, this value is arrived at by using one of three methods: (1) Cost approach, (2) Income approach, or (3) Market comparison approach. Also called appraised value.” Source: businessdictionary.com

 

“Appraisers are licensed and certified by their state regulatory agency who enforce the Uniform Standards of Professional Appraisal Practice as well as state and federal regulations.

 

The Uniform Standards of Professional Appraisal Practice (USPAP) is considered the quality control standards applicable for real property, personal property, intangibles, and business valuation appraisal analysis and reports in the United States and its territories and is overseen by The Appraisal Foundation. 

 

The Appraisal Foundation (TAF) is a non-profit organization established in 1987 with stated purpose of advancing professional valuation. The Foundation is overseen by the Appraisal Subcommittee (ASC), a subcommittee of the Federal Financial Institutions Examination Council (FFIEC).

 

The federal government does not regulate appraisers directly, but does so indirectly, because if the Appraisal Subcommittee (ASC) finds that a particular state's appraiser regulation and certification program is inadequate (i.e., it doesn't meet ASB and AQB standards), then under federal regulations all appraisers in that state would no longer be eligible to do appraisals for use by federally chartered banks. Banks make widespread use of mortgage loans and mortgage-backed securities, and would be unable to do so without appraisals.”  Sourced and modified from wikipedia.org content.

 

Appraisals are completed in a standardized format, using standardized guidelines and standardized procedures but there is a LOT of room for interpretation within those guidelines and often times there are VERY LARGE differences in appraisal values.

 

The good news is… a buyer does not buy a property at appraisal value… they buy it at what we call “Actual Market Value”.

 

Actual Market Value:

 

There are terms for the value of a property like Fair Market Value (FMV), Actual Value, Appraisal Value, and multiple ways to define each one of those. 

 

FMV Definition - Source: wikipedia.org 
“Fair market value (FMV) is an estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market. “

 

FMV Definition - Source: businessdictionary.com 
“Probable price at which a willing buyer will buy from a willing seller when (1) both are unrelated, (2) know the relevant facts, (3) neither is under any compulsion to buy or sell, and (4) all rights and benefit inherent in (or attributable to) the item must have been included in the transfer. FMV is generally the basis for tax assessment and court awards. Also called fair value.”

 

FMV Definition - Source: IRS.gov
“Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”

 

We like to use the term “Actual Market Value” (AMV) and make it the goal to reach that value as it is, according to it’s definition, is the highest price that can possibly be fairly acquired on a property.

 

Actual Market Value = The price that the willing, knowledgeable and able buyer and a seller agree to transfer ownership at.

 

AMV can be higher than appraisal price because the buyer can believe they are paying fair market value and so willing to contribute more cash if using a loan.  The buyer can also be more motivated than the seller (which is a normal occurrence… and a good thing for the seller) and thus the price can go higher than either an appraisal or typical definition of FMV would allow for. 

 

Summary/Conclusion

 

Actual Market Value can be higher than appraisal value or fair market value because the buyer and seller are not always equally motivated.  Ultimately, in the absence of distress and with proper exposure and access, the market will determine the final sale price of a property.

 

That value can be influenced by properly presenting the property, removing items that a buyer would see as devaluing the property and timing the sale to gain the best motivational advantage.

 

This is what Max Sale Real Estate was created to accomplish, has accomplished for our clients and can accomplish for you.

 

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