Property valuation is far from an exact science.  Here are 3 of the reasons for the differences:

1.  Different valuation methods used.  There are several different valuation methods:

–CMA.  The Comparative Market Analysis is done by an Agent usually in preparation for a listing. It compares several like properties in the area and may use currently listed properties or recently sold properties. If the comparisons are with homes that have been on the market for months, the CMA may not be a realistic selling price. The CMA may also not be taking into account the condition of the property or others it is being compared to.

–BPO. The Brokers Price Opinion is based on at least an external look at the property, and generally Lenders will require an internal inspection as well by a licensed Broker or Agent.  It is used to estimate the probable selling price of a property based on the property’s condition and recent sales within the area, and are generally the basis for a Short Sale or REO sale price.

–Appraisal.  An appraisal is done by a licensed Appraiser.  Appraisals require a more detailed inspection of a property and use specific standards and rules for finding and comparing other properties to the subject property. Generally, an appraisal will be required in order to obtain a mortgage, to refinance a property or to get insurance. Appraisals can also range plus or minus 10% from a mid-point.

–AMV. Automated Market Valuation uses averaged values from MLS IDX files from around the country and other tools to pinpoint a value range for a property.  Tools like Cyberhomes and Zillow use this method to arrive at value ranges for properties in particular areas of a particular size and are not based at all on inspection of a give property.

2.  Different levels of familiarity with the neighborhood.  The BPO agent or Appraiser who is called out to look at a specific property may not know the area and its value history.  This is why it is so important for the Investor or their Agent to meet the BPO Agent at the house in order to point out all the details that may well influence the final BPO number.

3.  After Repair Value (ARV) or current value.  Two homes may be the identical model on the same street, but one may have been completely trashed while the other has been maintained in pristine condition.  The trashed home may well have an owner who is months behind on the mortgage and has long-since abandoned the property, while the well maintained home shows no such distressed Homeowner.  There may be as much as 40 or 50% difference in the value of these two otherwise identical homes simply because one property is distressed and the other is not.