BPO ADJUSTMENTS? BECAUSE YOU ASKED! HOW DO BUYERS' AGENTS MAKE PRICE RECOMMENDATIONS? First, know the area!

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372
http://actvra.in/4c7t

BPO ADJUSTMENTS?  BECAUSE YOU ASKED! 

HOW DO BUYERS' AGENTS MAKE PRICE RECOMMENDATIONS?  First, know the area!

Mike Martin asks for comments from ActiveRain members about "adjusting for BPO reports".   Mike states:  I'm Having A Problem Adjusting!

MIKE MARTIN offers a thoughtful discussion about adjusting for BPO reports.   Mike's process for property price recommendation for BPO's is interesting because it relates directly to one of the important activities for Buyer's Agents.  One of the first questions 90% of home buyers will ask of their agents is "How much should I offer?"   The remaining 10% of home buyers simply state:  "I not paying more than $____ for that house".

"HOW MUCH SHOULD I OFFER?"  This question from a home buyer puts into action the process of a review of recenly SOLD area, including:

*  A price comparison of recent SOLD properties to the subject property,

*  Consideration of added value for the neighborhood, i.e.,

  • public school ranking
  • proximity to major employment areas
  • increased or decreased price trends for the past several months
  • relative condition of subject property

PRICE RECOMMENDATIONS ARE NOT A SIMPLE MATTER.  If the home buyer is a first time home buyer, hopefully they're going to be relying on your advice.   First time home buyers are a blank slate.  You, on the other hand, have experience selling homes, previewing many homes in the area, a database with a wealth of pertinent information at your fingertips.  YOU are the expert and have an awesome responsibility to, not only make a price range recommendation, but to expose the home buyer to the facts upon which you make that price recommendation.   Home buyers who have purchased in the past, will have their own specific experience, but it may not be relative to the community, property or present day market conditions. 

BPO's ARE GOOD PRACTICE.  Not all agents have the opportunity to prepare BPO's.  However, we all have access to homes for sale, Multiple list data reports and experience selling properties and reviewing the appraisals on which the buyer's mortgage company relied for value.  Mike uses a formula like approach to determine value such as:     

"Lot adjustments made at $1.00 per square foot on differences greater than 1500 square feet."

My experience (based on a review of many appraisals of homes sold) with lot valuation relates to the norm or average for the community.  If a community was developed with an average 1/4 acre lots and the subject property happens to sit on a 2.5 acre lot, the additional square feet of the lot over 1/4 acre may be considered by an appraiser to be "excess acreage".  Excess acreage doesn't have the same value per square feet or acre as the average lot in a community or area.  When a property is on 7.5 acres in a one acre average community, just about all of the lot over about 2 acres will be value as "excess acreage".  How often have you seen a property languish in the MLS because it's over-priced based on an over-valuation of the lot?? 

"Age adjustments made at $1,000 per year on differences greater than 10 years."

Age adjustments are interesting because they are often community specific.  If 95% of the homes in the community including all of the recently sold homes were constructed 55 years ago and the subject property was built just 3 years ago on a "tear-down lot" an out-lot or recently subdivided lot, that newer home will offer added value, not necessarily by formula, but for newer systems, style, floor plan, amenities and condition not found in other homes in the neighborhood.    

"Bathroom adjustments made at $2500 per half bath."

Where is the half bath located?  Is it a half bath on the main level (Powder Room)?  Or, is it a half bath in the basement?  For Rambler/Rancher homes, it won't make a difference, but for two level homes and homes with basement foundations, it may. 

IS THERE REALLY A FORMULA FOR PRICE VALUATION??  Mike says, I'm Having A Problem Adjusting!  The one thing that I have learned over the years is that the formula for price valuation is that there is no formula.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

New Home   Resale Home

The homes above are similar in lot size, home size and area.  However, the new home and the 15 year old home will have different price valuaitons. 

 

 

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Re-Blogged 2 times:

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  1. Monique Hailer & Todd Combs, PA 05/09/2010 10:21 PM
  2. Cheryl Ritchie 05/10/2010 08:34 PM
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Mike.  You have a clear understanding of the process of price valuation. 

HA!  With the exception of super luxury communities and luxury homes, a pool in this area is generally considered "an attractive nuisance", meaning the liability far exceeds the use value for 3/4 months out of the year.  Unless a buyer comes from an area where a pool is the norm, FL, CA, AZ and require a pool, they have no value.  Generally, if a buyer wants a pool, I find properties where they can install one after settlement. 

Understanding amenity value will surely save a new home buyer from loading up the new home with upgrades that offer no resale appraisal value.  That full masonry fireplace on a modest home will not offer much more on a resale than the pre-fab insert with gas flames.  Paying $100,000 more for 4 brick sides in a community with standard brick fronts is not going to hold much value when it's clearly "out of market". 

Understanding these things and giving a buyer good advice makes for lots of nice settlements.

 

 

May 08, 2010 06:37 PM #46
Rainmaker
1,258,186
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

You can do all that and the appraiser is going to come along and screwed it up with a low ball evaluation anyway.  I always advise people that the appraisal process can produce bizarre results.

May 08, 2010 06:51 PM #47
Rainmaker
180,245
Cameron Wilson
Labrum Real Estate - Murrieta, CA
The Short Guy - Murrieta,Temecula,Menifee California

Excellent steps to valuing a property Lenn. It comes down to 'Know Your Market' and if an agent is located far from the area refer the client to a local.

May 08, 2010 07:11 PM #48
Rainmaker
216,618
Tom Bailey
Crystal Coast Realty & Home Services, LLC - Atlantic Beach, NC

Lenn thanks to you, Renee, and Michael for your posts. I have learned a lot from all the back and forth. One of the commenter's on Michael's post put it best when she said you can not make an algorithm to do a BPO. If you could the banks would do BPOs themselves. You are so right that you have to know the market to make adjustments. It can be very hard here on the coast. We have big box rentals, second homes, and regular residential neighborhoods. The value of bedrooms and baths can vary by $10,000 or more. Bedrooms and baths in a large oceanfront rental are like gold because of the rental structure based on numbers of people that can sleep in home. We also have a historic neighborhood where older home often sell for more than new homes on tear down lots.

May 08, 2010 08:29 PM #49
Rainmaker
605,792
Barbara Altieri
RealtyQuest, Fairfield and New Haven County CT Homes for Sale and Real Estate - Shelton, CT
REALTOR - Fairfield County CT Real Estate

My 'formula' is comparable solds, make the necessary adjustments (location, upgrades, square footage,etc) and KNOW the area.  The latter is the most important.

May 08, 2010 08:38 PM #50
Rainmaker
973,908
Sharon Alters
Coldwell Banker Vanguard Realty - Fleming Island, FL
Your Fleming Island Relocation Agents.

Lenn, bingo! The formula is NO FORMULA! That said, there are trends for certain neighborhoods if the property falls within the norms of that neighborhood.

I have seen a home where it cost $50,000 to the Seller because they didn't have a 3rd car garage. Now that's not what a 3rd car garage comps for, but that's what in reality it can cost a Seller in that neighborhood IF they don't have one.

May 08, 2010 10:49 PM #51
Rainmaker
105,433
Deborah Wilson
Cutler Real Estate - Canton, OH
Stark County OH Real Estate

I do BPO, and I've learned a lot here.  I wish Lenn could do a Active Rain  Universisty class on BPO opinions.  I'm just saying.

May 08, 2010 10:57 PM #52
Ambassador
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

Knowing the market is a very important in coming up with a price especially if there are no good comps to work from.  I think a lot is just based on opinion based on our experience.

May 09, 2010 02:27 AM #53
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Christine.  Experience is the key.  When a propertyis "unique", you'll know how to comp it. 

Frank and Sharon.  HA!  That 3rd car garage in a community of homes with 3 car garages (side load please) means that the property is more likely to sell before a property with only a 2 car garage.  The difference in the value may not be much but sitting on the market means a lot.  Same thing with a fireplace in a community where all the other homes have a fireplace, even if you never use it.


Barbara.  I agree completely.  Agents who want to understand good comparable skills need to "get out there" and review, preview and learn.

Tom.  That was a good description of, not only what will affect value, but also the WHY.

Deborah.  Go to Renee Drumm's recent featured post on BPOs.  It's a masterpiece.

Cameron.  Many agents are loathe to "give business away" and blunder on themselves.

Gene.  Perhaps, especially in the past 6 months or so.  However, with lenders who are using appraiser pools, the results are good and the appraisers local and experienced.

 

May 09, 2010 06:00 AM #54
Rainmaker
157,442
Tina Gleisner
Home Tips for Women - Portsmouth, NH
Home Tips for Women

Fascinating article & it brought back memories of my appraisal classes, as the technique is similar. I like how you pointed out that there are limits to extra value for more land, etc.

May 09, 2010 08:10 AM #55
Ambassador
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Realtor - Ann Arbor Real Estate

Yea that is what I tell them...it makes your home easier to sell.

May 09, 2010 09:02 AM #56
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Tina.  Indeed.  When the only feature that distinguishes one property from another is an acre or two or three, etc., no appraiser is going to give much, if any value to that excess acreage.

Missy.  And it should.  Sensible valuations help both buyers and sellers.

 

May 09, 2010 09:22 AM #57
Rainmaker
351,538
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Lenn, I think pricing is an art that some people have the ability to grasp and some simply do not.  Unfortunately in Real Estate a simple formula is not so simple.  Lot size in my area doesn't effect value unless you get into acres.  A .5 is not worth anymore than a .35 or less than a .75. 

It really is amazing how much real estate changes from region to region.

May 09, 2010 12:47 PM #58
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Damon. Indeed.  As I said, relative similar lot size doesn't change value that much.  However, many agents will tout in their listings "largest lot in community" even when that lot turns out to be terrible.

 

May 09, 2010 05:28 PM #59
Rainmaker
183,914
Alan Grizzle
Chestatee Real Estate - Dahlonega, GA
Full Time Realtor, Lifelong Resident of Dahlonega

If you do not know the market value can be hard to determine. Because of the new appraisal rules one of my listings that is under contract just got appraised by an appraiser who works 60 miles from my area.

He was doing an appraisal on a 4 year old stick built house that was bought as a foreclosure, restored to like new condition. The home is located in a good area on a paved public maintained road. For one of his comps he used a singlewide mobile home that was over 20 years old it had been built onto and was located on a private maintained road then he used a foreclosed modular home that needed repairs. How are those comps? The old mobile home did not qualify for FHA, VA, or USDA financing.

He did not use a stick built home the same age as the subject that was very close to the same size as the subject and closer to the subject. He also did not use another stick built home that sold that was about the same size as the subject, looked very much like the subject, about the same sizes the subject and closer to the subject than the singlewide and modular. The better comps were recent sales within the last six months. The appraiser used 1 similar comp that closed a year ago and made a huge price adjustment for time. The two newer comps he did not use both sold for more that the subject.

May 09, 2010 05:44 PM #60
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Alan.  Sad, sad.

However, you don't say whether or not he appraised your sale at contract or better. 

May 09, 2010 06:12 PM #61
Rainer
146,725
Gary Pike
Better Homes and Gardens Real Estate Metro Brokers - Powder Springs, GA

I have found that when doing a CMA for either a listing or a buyer I am going so far as to find comparables that I can use to show an Appraiser how I got my numbers if they don't come in at what is needed, a lot more in depth than a few years ago.  It is a great learning experience talking to those people through some seminars I have taken.  thanks for this post I have picked up some great info to move forward with.

May 09, 2010 10:35 PM #62
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Gary.  I agree completely.  I would say, I show the appraiser the comps I use way BEFORE they come up with a number.  By then, it's pretty much too late.  Competence with pricing is a valuable skill.

 

May 10, 2010 06:07 AM #63
Rainmaker
95,245
Kathie Burby
Real Living Sugar Pine Realty - Sonora, CA
REALTOR, SFR, Tuolumne County Real Estate Guide

Lenn - Thanks for the thought provoking post. You are so right - there is no magic formula and no substitution for knowing your market inside & out.

May 10, 2010 03:20 PM #64
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Kathie.  Indeed.  I believe we have conveyed that message.

May 11, 2010 05:48 AM #65
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Lenn Harley

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