Value and Financing Flashcards
three main valuation products:
Appraisal - are the most accurate and reputable of the three
Comparative market analysis (CMA) - in the middle
Broker opinion of price (BPO) -are the least accurate and formal
appraisal is an
-an official valuation given to a property by a licensed appraiser
-a very educated and data-driven approach to finding the market value of a property, but it’s an opinion nonetheless. The opinion is informed by current research, past experience and knowledge, and good old-fashioned judgment.
A few characteristics of an appraisal are that it:
Is an impartial, qualified appraiser’s opinion of value
Applies to a specific property as of a specific date
Is supported by relevant market information
To be an appraiser, one needs:
Strong analytical skills
The ability to observe and assess market trends
The ability to separate opinion from fact
Appraiser Requirements
1.You must meet the education requirements for the type of appraisal license for which you’re applying.
2.You must gain the experience required for your desired license or certification.
3.You must pass the written exam.
In Florida, a state-licensed and certified appraiser is the only one
who can do an appraisal for federally-related transactions, such as federally related loans. These appraisers are regulated by the Florida Real Estate Appraisal Board (FREAB).
A real estate licensee may perform an appraisal
and receive compensation for doing so in all other, non-federal transactions. The only requirement is that they do not represent themselves as a state-certified or licensed appraiser. Sales associates are regulated by the Uniform Standards of Professional Appraisal Practice (USPAP) when they conduct appraisals. Licensed appraisers must adhere to USPAP as well.
The Uniform Standards of Professional Appraisal Practice (USPAP) is an
agency charged with overseeing, regulating, and promulgating real estate appraisals and appraisal practices. It is the ethical code that appraisers in the United States must follow
One of the most important rules of the Uniform Standards of Professional Appraisal Practice (USPAP) is:
it is unethical for an appraiser to accept compensation based on the value of a property.
Appraisals may be ordered for any number of situations, including:
-Any sale of real estate
-Mortgage lending, especially for government-backed loans
-Setting rental rates for leased property
-Finding investment values
-Government acquisitions of property, such as eminent domain
-Acquiring property insurance
-Tax assessment appeals
Appraisals are the most official, regulated way to assign value to a property, but they aren’t the only way. An agent can also suggest a well-researched price range to a seller through a comparative market analysis (CMA).
A comparative market analysis (CMA) is a
report that compares the prices of recently sold or listed homes (“comparables”) in order to estimate the market value of a similar property (the “subject property”) located in the same area.
-This is the tool you’ll use to guide your client towards a proper price for their property.
Almost everyone you meet in the real estate biz will call a CMA a CMA. If you ask them what CMA stands for, some people will tell you “comparative market analysis” and some people will tell you “competitive market analysis.” Both are correct and one in the same.
CMAs, though similar in some ways to an appraisal, are NOT appraisals and may NOT be represented as an appraisal. Because they are not appraisals, this also means they do not have to adhere to USPAP standards.
It’s also important to note that if a sales associate charges a fee for preparing a CMA, that fee must be paid to the employing broker and not directly to the sales associate (who actually conducted the CMA).
A CMA is NOT an appraisal.
Here are a few significant differences between the two:
You sometimes have to have an appraiser’s license to create an appraisal.
An appraisal is usually done for a fee.
A CMA is usually done for free.
A CMA is less detailed AND less reliable than an appraisal.
Appraisals must conform to USPAP standards but CMAs do not.
a CMA and an appraisal have a few commonalities:
Both are used to arrive at a fair market value of a property.
Both use a sales comparison approach that is based on the principle of substitution and the principle of contribution.
Creating a CMA -start with the neighborhood, then narrow down to the inside of the home
1.Evaluate the neighborhood.
2.Evaluate the subject property.
3.Find comparables.
4.Compare and adjust selected comparables.
5.Establish a listing price range.
Tips for properly pricing a home (essential to becoming a great listing agent) (best form of marketing is properly pricing a home)
-go out and look at the other properties you’ll be competing against
-preview those homes
-make notes about what those other homes look like compared to the home you are listing
-study the trends in the area (What is the appreciation rate?
-look at the national housing market (What is going on in the mortgage rate?
A broker price opinion (BPO) is a
broker’s opinion of the value of a piece of real property, given in writing.
- Essentially, it’s an estimation of property value that may be even shorter or less formal than a CMA.
-A BPO may be more commonly seen in commercial real estate settings than in residential real estate.
There are a few rules and regulations that govern BPOs:
BPOs may NOT be represented as appraisals.
Sales associates may perform a BPO for compensation but may only do so under the supervision of their employing broker.
Compensation paid for a BPO must be given to the broker.
USPAP regulations do NOT apply to BPOs.
BPOs are typically utilized during the foreclosure process. Relocation companies or lenders going through a short sale or similar process would likely utilize a BPO. They’re less costly, and therefore a more attractive option when money is already tight (as it is in the foreclosure process).
clients can obtain financing from:
Mortgage brokerage companies
Credit unions
Savings associations
Commercial banks
Loan origination is the
multi-step process through which a borrower obtains a mortgage loan from a lender.
A MLO can be
an institution or an individual that takes a borrower through a rigorous, multi-step process that, hopefully, culminates in a loan agreement.
Makes the funds needed to complete a real estate transaction available
loan originator
An official valuation of a property’s value
Appraisal
A broker’s opinion of the value of a piece of real property, given in writing
BPO (broke opinion of price)
Are typically utilized during the foreclosure process, and are less costly
BPO
The multi-step process through which a borrower obtains a mortgage loan from a lender
Loan origination
Always conforms to USPAP
Appraisal
A report comparing recently sold properties in order to estimate the market value of a similar property
CMA (comparative marketing analysis)
Moderately accurate, may be done by a licensee
CMA
A buyer wants to obtain a loan from their local commercial bank, so they begin the multi-step process to obtain a mortgage. This process is:
Loan origination
