If you’ve ever tried to figure out how much a home is worth, you may have become very confused by the wide variations among real estate valuations that can be used. These definitions may help:
The asking price is the amount the owner of the property believes the property may be worth or the amount he or she may be willing to accept from a buyer who wants to purchase the property. The asking price is set by the seller, often in consultation with a real estate agent, when the property is offered for sale.
The purchase-offer price is the amount the buyer believes the property may be worth or the amount he or she may be willing to pay the seller to purchase the property. The offer price is set by the buyer, again often in consultation with a real estate agent, as part of the buyer’s purchase offer.
The market value is the agreed-upon price that the seller is wiling to accept and the buyer is willing to pay for the property.
A comparable market analysis, also called a competitive market analysis or CMA, is an opinion of the property’s value that’s prepared by a real estate agent, usually to help the seller determine an asking price or help the buyer determine a purchase-offer price.
A broker price opinion or BPO is also prepared by a real estate agent and may be equivalent to a CMA in some parts of the country. Lenders use BPOs to set asking prices for properties they’ve acquired through foreclosure or other means. BPOs also may be used in such situations as ethics hearings or lawsuits that involve real property.
An appraisal is an opinion of a property’s value that’s prepared by a state-licensed real estate appraiser. An appraisal is based on the location and condition of the property and prices of recently sold comparable properties. Lenders typically require an appraisal paid for by the borrower as part of the home loan process.
An automated valuation model or AVM is a computer program that uses statistical analyses of home sales in a local area to generate estimates of property values, which may also be called AVMs. AVMs tend to be more accurate in established subdivisions that contain large numbers of very similar homes and less accurate in rural areas or areas where neighboring homes are very dissimilar to one another. An AVM may differ from the market value or appraised value for the same property.
The tax-assessed value is determined by a state or local tax assessor to levy property taxes and other ad valorem assessments. The tax-assessed value is rarely the same as the asking price, purchase-offer price, market value or appraised value of the property.
The insured value is the maximum amount an insurance company could pay on a homeowner’s insurance claim if the home were damaged or destroyed in a fire or other covered disaster. The insured value considers the size and features of the home and the estimated cost per square foot to rebuild the home, but shouldn’t include the land value. The insured value doesn’t guarantee that the home could be rebuilt for that amount.
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The RealEstate.com Home Valuation Center provides five different ways to assess home value, whether you’re buying, selling, or just nosey. Visit http://www.realestate.com/value to get started.
Published on June 08, 2007