Friday, January 29, 2010

AVM, CMA, BPO, Appraisal - What's the difference?

In the valuation of real estate lenders have several options to obtain an opinion of value on a piece of property. The difference is the scope of work, speed, accuracy and price. Here are some of the differences and benefits.

1.) The AVM or Automated Valuation Model
This is a computer generated product that is based on your homes information in public record. Lenders generally use AVM's for low loan to value home equity lines of credit HELOC's. An AVM is real fast, real cheep and not very accurate. The lender's attitude is if the borrower has good credit, and its a low loan to value transaction, who cares about accuracy! That works sometimes if the lender is responsible and uses it for that purpose.

Problems with AVM's is that they are based on public records. So if you have recently done some modernization or a recent addition, it will not be picked up. Or if the house was recently destroyed in a fire it will not pick that up either. is similar to an AVM and its free, Zillow uses this to sell advertising on their site.

2.) The CMA or Competitive Market Analysis
Another computer generated service, this time performed by a real estate broker or salesman. A sales agent will perform a CMA prior to listing a house to determine the asking price and give the seller an indication of what it will sell for. You can get a CMA free from an agent, they want to list your house.

The problem with the CMA is that sales people want your business. Some sales people tell you whatever they think you want to hear. So how accurate is the value of a CMA?

3.) The BPO or Brokers Price Opinion.
These are used a lot by lenders with REO or "Real Estate Owned" work. REO's include foreclosures, pre-foreclosures, Short Sales and Bank Owned properties.

The BPO is not computer generated and is reported on a form similar to an appraisal. So why use a BPO instead of an appraisal. Lenders use them because they can get a BPO faster and cheeper than an appraisal. Its important to note that BPO's are not an appraisal.

Lenders still worry that the broker's opinion is influenced by a potential listing.

4.) The Appraisal
An appraisal is an opinion of value given by a licensed or certified professional. Most appraisals for lending purposes are used to determine "Market Value".

Market Value is defined as: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and Seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Licensed or certified appraisers perform their work under the Uniform Standards of Appraisal Practice or "USPAP". These standards determine the "Scope of Work" that will be used to complete the appraisal. USPAP does not require the appraiser to make a physical inspection of the property, however, many appraisals will include one.

The accuracy of an appraisal is in part determined by the "Scope of Work". It is important to note that as the scope of work changes the accuracy of the appraisal changes as well.

Based on a minimal scope of work the appraiser can perform an assignment as a "Desktop Appraisal". For this assignment information about the subject property can be obtained from public records or a prior appraisal. This type of assignment is generally performed for lenders on HELOC work.

The "Drive-By Appraisal" is performed under a different scope of work. Generally used by lenders for HELOC or low loan to value refinances, the benefit of performing a drive by is that the appraiser can see the outside condition and the lender knows the improvements are still there.

Most appraisals for purchases or refinances are performed as what is considered a "Complete Appraisal". With this scope of work the appraiser will perform an on site walk-thu of the subject property to determine its size, appeal and overall condition. The appraisal process will consider "the Sales Comparison Approach" and if applicable "the Cost Approach" and "the Income Approach". The results of the appraisal are reported on a standard form. This type of appraisal provides the most accurate opinion of value.

It is important to note that the appraiser is a disinterested third party and provides their opinion of market value for a fee. The appraiser is not trying to list your house and does not benefit from the outcome of the appraisal. For this reason the FHA, VA, Fannie Mae and Freddie Mac require appraisals performed by state licensed or certified appraisers.

There are many reasons that property owners will require the services of a professional appraiser. Many will obtain a pre-listing appraisal prior to the sale of a home, its also smart to obtain your own appraisal prior to making an offer to purchase. The IRS often requires "Date of Death" valuations to settle estates. The appraiser is often called as a Expert Witness in a valuation for divorce, partnership, taxation issues etc. All of these require a well supported, professional appraisal that is defensible in court. For these assignments I recommend a complete appraisal with an interior inspection.

Citywide Services provides residential appraisals in Chicago and the surrounding suburbs. Our appraisers are certified by the State of Illinois. We have experience with all types of residential property and appraise single family homes, townhouses, condominiums as well as small residential income properties. When you need an appraiser in the Chicago area contact Citywide 312-479-5344

Tuesday, January 19, 2010

Loan originations to decline says the MBA

Predicting that interest rates would rise later this year, the Mortgage Bankers Assn. said in a report this week that it expects total mortgage originations to decline from $2.11 trillion in 2009 to $1.28 in 2010 as refinancing drops off.

Monday, January 18, 2010

the External Obsolescence blog

I started a new blog dealing with external obsolescence on Blogspot at

The Dictionary of Real Estate Appraisal defines external obsolescence as: "An element of accrued depreciation; a defect, usually incurable, caused by negative influences outside a site."

External obsolescence causes a loss in value to your property caused by forces that you can not control like the current condition of the world economy. That's what it means when its says "usually incurable", you cant fix it and just have to live with it.

The type of external I will deal with in the blog is "Locational Obsolescence" in other words a bad location. This is another thing you can't fix, if you buy a bad location, you are stuck with a bad location.

In my travels as a real estate appraiser I find some real good examples of bad locations. It should be noted that none of the examples shown in the blog are any of my clients property.

So check out the External Obsolescence blog

Friday, January 15, 2010

Downser Grove, IL 60515 - Housing Market

According to the Northern Illinois MLS there are currently 309 active listings of single family detached homes as of 01/15/2010.

The median list price is $379,900.00

In the last 30 days there have been 19 closed sales, 63 new listings, 27 listings have expired, and there were 13 price changes.

The median sales price was $310,000.00

At the current rate of absorption there are 16.26 months of unsold inventory in Downers Grove, Illinois

Corrosive Drywall

Now found in 42 states, Chinese Drywall is becoming a major concern of homeowners. Many in the Chicago area have never heard of it, and few if any know what to look for, or know the dangers of owning a home that has defective drywall.

Tuesday, January 12, 2010

Pending Home Sales Plunge in November

Pending home sales in the Northeast and Midwest were down 25.7 percent.

The National Association of Realtors reported that pending home sales fell 16.0 percent in November, hitting their lowest level since June. Remarkably, this decline appeared to surprise many analysts. It should have been entirely predictable.

In the prior three months, there had been a sharp surge in home sales. This surge was obviously driven by the desire to close on a sale before the expiration of the original first-time buyers tax credit at the end of November. Because it depended on the closing date of a sale, buyers had to sign contracts by mid-October to ensure that they would qualify for the credit. This was before they knew that the credit would be extended.

Read the entire article by Dean Baker

Skokie, IL 60076 - Housing Market

According to the Northern Illinois MLS there are currently 216 active listings of single family detached homes as of 01/12/2010.

The median list price is $347,250000.00

In the last 30 days there have been 18 closed sales, 32 new listings, 17 listings have expired, and there were 10 price changes.

The median sales price was $306,500.00

At the current rate of absorption there are 12.00 months of unsold inventory in Skokie, Illinois 60076

Monday, January 11, 2010

HUD to assist with problem drywall

Temporary relief available to make home repairs affordable for at-risk borrowers

The U.S. Department of Housing and Urban Development announced that FHA-insured families experiencing problems associated with problem drywall may be eligible for assistance to help them rehabilitate their properties. In addition, HUD’s Community Development Block Grant (CDBG) Program may also be a resource to help local communities combat the problem.

FHA is reminding its approved lenders that they are to offer special forbearance for borrowers confronted with the sudden effects of damaging drywall products in their homes including the financial hardship associated with related home repairs.

“We’re instructing our FHA mortgage lenders nationwide to extend temporary relief to allow these families time to remove problem damaging drywall and repair their homes,” said FHA Commissioner David Stevens. “We want to remove additional pressures for these families as they find solutions to allow them to return to a safe, decent and sanitary home."

Deerfield, IL 60015 - Housing Market

According to the Northern Illinois MLS there are currently 121 active listings of single family detached homes as of 01/11/2010.

The median list price is $569,000.00

In the last 30 days there have been 8 closed sales.

The median sales price was $530,000.00

At the current rate of absorption there are 26.50 months of unsold inventory in Deerfield, Illinois 60015