Difference Between Various Real-Estate Valuation Methods - ValueLink Appraisal Management Software
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Difference Between Various Real-Estate Valuation Methods

The three methods most commonly used to estimate the fair market value of a property are:
· Appraisal
· Assessment
· Broker Price Opinion

The purpose of this article is to give readers a general idea before they make a decision to buy or sell a property, we believe that it is important for a property owner to understand these valuation methods, and know the advantages and disadvantages of each. Below is a comparative analysis of the 3 ways to analyze the value of a real estate property:
1. APPRAISAL:

· What is it?An appraisal is the most detailed method to estimatethe value of aproperty this method is used to calculate the market value of the property. The Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value.

· When is it needed? There can be many reasons to obtain a professional appraisal.The most common reasons are listed below:

o To obtain a loan
o To lower your tax burden
o To contest high property taxes
o To settle an estate
o To determine a reasonable price when selling your property
o To fulfill the requirements of a government based agency e.g. the IRS (Internal Revenue Service).
o To assist with legal issues.

· Advantages:
o Detailed assessment of the property in question.
o Complies with industry related rules and regulations.
o Most widely used method to assess the value of a property
o Physical visit
o Detailed comparable property analysis
o Modern appraisal software has made it extremely easy to compile detailed accurate reports that cover each aspect of the property valuation process.

· Disadvantages:
o It requires a license and unlike a B.P.O doesn’t take into account cost to repair the subject property which can become a block when judging the true value of a property.
o It is a relatively expensive option. An appraisal can cost you from as low as $100 to $1000 or more depending upon the size and current market value of the property.

 

 

2. ASSESSMENT:

· What is it?An assessmentis the value of a house as determined by the town or city tax assessors!

· What is it needed? The purpose of an assessment is to determine the tax due on a particular property.

· How it works?The local government will appoint assessors to assess the value of all properties in that municipality during a 4-12 month period. Values are determined by a team of qualified assistants after viewing properties and interviewing owners. The combined assessed value of all the town properties is then used to calculate what the tax rate will be.

· Advantages:

o Free value assessment of your property.
o Does not require a license.
o You will get a free and reasonably accurate value for the amount of tax you have to pay for the property in question.

· Disadvantages:

o Assessments can be dated and may not reflect current market conditions.
o A re-assessment is done only when, in the assessor’s opinion, the previous assessed value has become outdated or obsolete.

 

 

3. BROKER PRICE OPINION:

· What is it?A BPO is the estimated value of a property as determined by a real estate broker or other qualified individual or firm. A broker price opinion is based on the characteristics of the property being considered.

· When is it needed? To estimate any of the costs associated with getting the property ready for sale and/or the cost of any needed repairs.

· How it works? A BPO provides you with estimated value of the property in by taking into account the following:

o The value of similar properties.
o Sales trend of similar type properties.
o The cost of repairing the property to make it presentable at the time of a possible sale.
o The person producing the B.P.O must be registered to any legal BPO company which is free.

· Advantages:

o Cheaper when compared to an Appraisal as a BPO will cost you under $100.
o Like an appraisal it also involves a physical visit.
o It gives the intended user a complete cost breakdown of the property in question which includes cost of repairing the house.
o Intended users can utilize on the low price valuation from a BPO to attract more potential buyers.

· Disadvantages:

o Requires a lot of energy and time but is not financially rewarding to the company doing the BPO.
o States have different licensing requirements so it becomes difficult for brokers to work in multiple states.
o To ensure quick sales brokers sometimes provide a lower inaccurate value in the BPO.
o In recent times have been blamed for reducing home sales.
o Are not as accurate as appraisals.
The above overview should give you a basic idea of the steps involved in each process and the pros and cons of each method. You must choose the method that best suits your needs. If you require a detailed analysis of the property, an appraisal is the way to go.

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