What’s a home worth – Appraisals, market analyses, and price opinions

house valuesWhat’s the value of my home?” is a question that is often asked by many home owners at least once, usually before they decide to refinance or list their home for sale.  Although the question seems straight forward enough, the answer may not be – and can vary depending on whom you ask.

Market Value can have different meanings.  Some may view a home’s value in terms of an asset on a balance sheet, while others may consider a home’s value as a potential sales price.  And although these approaches to value may be similar, there is often significant disparity in their conclusions.

Mortgage lenders consider a home to be an asset, which is the basis for lending you money; as well as the basis for bundling and selling mortgages on Wall Street.  Additionally, a home is often considered an asset or liability when determining the disposition of legal proceedings, such as (but not limited to) probate and divorce.  A real estate appraisal is most likely used in determining market value for these situations.

According to the Appraisal Institute (Pamphlet “Some Commonly Asked Questions About Real Estate Appraisers and Appraisals”; appraisalinstitute.org), “An appraisal is a professional appraiser’s opinion of value. The preparation of an appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience and professional judgment of the appraiser.”  Additionally, Title 16 of the Business Occupations and Professions, Annotated Code of Maryland defines an “appraisal” as a “…means an analysis, conclusion, or opinion about the nature, quality, utility, or value of interests in or aspects of identified real estate” (§ 16-101. Definitions).

Not to be confused with an appraisal, a Comparative Market Analysis (CMA) can assist a home owner with deciding on a listing or sales price.  In fact, § 16-101 differentiates a CMA from an appraisal by stating, “’Appraisal’ does not include an opinion to a potential seller or third party by a person licensed under Title 17 of this article [referring to a real estate broker] about the recommended listing price or recommended purchase price of real estate, provided that the opinion is not referred to as an appraisal.”

If you are asking about the value of your home because you’re planning a home sale, consider consulting with a real estate and a CMA.  Although a thorough and professional CMA is not an appraisal, a CMA is a technical and methodical procedure that is typically limited to a specific neighborhood or subdivision so as to offer a rationale for a probable listing or sales price.  Unlike appraisal methodology, which is uniform; there is no standard approach to preparing a CMA; however, a comprehensive CMA can be technical and systematic, as well as offering a market trends analysis in one, three, and six month segments.

Many lenders have also turned to agent prepared CMA’s to assist in determining potential listing or sales prices for distressed assets (e.g., foreclosures and short sales).  Also known as broker price opinions, these CMA’s provide a market snapshot to assist with such disposition decisions.

The value of your home will vary depending on whom you ask; your neighbor may even have an opinion.  However, if you’re planning a home sale, an experienced agent and their detailed CMA may be your best source of information to decide on a listing price.

by Dan Krell © 2013
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Disclaimer.  This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice.  Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction.  This article was originally published the week of December 16, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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