Other Valuation Products:
It is common to see non-licensed opinions of value rendered by brokers and real estate agents, or even former appraisers or appraisers not operating under the parameters of the state governed appraisal licenses. These most frequently come in the following forms:
- Broker Price Opinion (BPO) or Broker Opinion of Value (BOV) – These are formal opinions of value performed by commercial real estate brokers to provide a “quick look”of value expectations to a potential seller or buyer. They typically range from 1-12 Pages and may or may not include some comparable data from the market. Typically, they are performed at a high level(meaning, they may not go through an adjustment process the way an appraiser might) and are often the starting point in providing guidance to a buyer or seller as to a possible sales price recommendation or target.
- Competitive Market Analysis (CMA) – These are basically the same as a broker opinion of value but is a more common terminology for the residential real estate community. Most real estate agents will run a search of recent listings and sale transactions from a Multiple Listing Service to help sellers and buyers have a general expectation of pricing. Many real estate agents will perform these free of charge in hopes to win a possible listing agreement or client.
- Evaluations – This is a term currently used by the mortgage lending industry. In some lending situations where the risk of a particular mortgage loan is perceived to be extremely low, banks are typically allowed to order an appraisal-like report by a non-appraiser. The reports are generally shorter than an appraisal and do not adhere to all of the nitty gritty details that should be happening in appraisals. I will note that many appraisals are producing a restricted use appraisal product to help meet the need for evaluations. When this happens, the document can be both a restricted use appraisal and an evaluation.
The Big Difference
In markets with an established appraisal industry, it is important to note that a key way in which appraisers differ from a broker opinion of value (BOV), broker price opinion (BPO), or a Competitive Market Analysis (CMA), is that an appraisal engagement typically should establish a flat fee as compensation for the appraisal preparation. Keeping the appraiser’s compensation disconnected from his appraisal conclusion helps ensure that the appraiser is not motivated, either consciously or subconsciously, at a higher opinion of value.
Contrast this to a broker opinion of value or CMA, the broker does stand to make a profit based on the value conclusion they suggest. They are not bound by the same independent requirements that an appraiser is bound to. It is important when obtaining these types of value opinions to get clarity from the broker about what might be the difference between his “opinion of fair market value” vs what is his recommended pricing of the real estate.
Sometimes, just a quick, basic, high-level appraisal is all that is needed. But in other cases, an extremely detailed and accurate market analysis along with a highly complex and nuanced application of appraisal methodology is required. The big takeaway? Understand what you need and why, and then get the right person doing the job for you for the right price. We are very good at this and are happy to give you our suggestions or possibly direct referrals if we know a good match for you. We can even manage this process for you if you like, review the work done by the appraiser, and give you extra assurance.