Teton Realty Blog

Teton Region Real Estate Market Stats, Articles & News

What is the difference between a BPO and appraisal?

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First of all, what the heck is a BPO? A BPO is a “broker’s price opinion”. You might also see BOV (broker’s opinion of value) CMA (comparative market analysis) or other forms of the same basic meaning. The broker is usually simply considered a real estate professional with expertise in the area. What is an appraisal then? An appraisal is an appraiser’s opinion of value. (no, I don’t think they usually abbreviate) since we know what a broker is usually defined as, a real estate appraiser is usually defined as a professional who develops an opinion of value on a specific type of property. Sound like the same person? Yes, but it is not.

So, back to the question at hand, what is the difference?

While any old real estate agent can compare recent sales (often called comps or comparables) and develop an opinion of value for someone, it usually cannot be used by a bank or lender to verify a property is worth or what someone is willing to pay for it. In fact, most real estate agents are not even allowed to be compensated for a BPO, usually only the responsible broker of an office can be compensated. However, most good brokerages will provide market analysis and opinions of value for free. (ahem).

On the other hand, a real estate appraiser is obligated by federal law to be state licensed or certified. That involves acting as a trainee for a certain number of hours, (yes, appraisers must train their own future competition) becoming a licensed appraiser, and becoming certified for specific applications. Just like a real estate agent, appraisers are required to complete many hours of education and continuing education for their profession. An appraiser is an unrelated party to a real estate loan, usually in place to protect the lender.
So, can a real estate agent performance appraisal? No! Unless that real estate agent is a licensed appraiser. Can a real estate agent give you an opinion of value for your property? Sure! But it cannot be considered an appraisal.

I have been trying to find someone to owner finance or lease to own, why is it so difficult around here?

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I’m glad you mentioned owner finance and lease to own in the same question. In a way, they’re the same thing. a summary of each;
-Owner finance is possession upon closing, usually in the form of a deed of trust. This works the same as getting a loan and buying a home, except the owner collects the payments. Usually the owner will collect payments through a third party such as a title company and a long term escrow. This way, your insurance and taxes are typically included in the mortgage payment to protect the seller from a disaster or tax foreclosure.
-A lease to own is not considered possession upon closing, but exactly how it reads, leasing until either obtaining finance by the bank, the owner, or cash at the end of the lease term. typically a portion of the lease payments would apply to the purchase price in this event.

Now, why aren’t they very popular? I think the best way to understand this is pros and cons of each. Not only that, but there are pros and cons for each the seller and the buyer, which are sometimes conflicting. In the owner finance situation, the buyer has an opportunity to recover poor credit, and purchase a home today at (presumably) a lower price. On the conflicting inside, the seller is (presumably) selling the home for a lower price today to a buyer with potential credit problems and not receiving a full cash payment to invest elsewhere. Of course in return for this, the seller will be making a return on the interest rate. That interest rate must be sufficient to cover a higher return than the seller would make investing the full cash investment elsewhere today. This might sound weighted towards disadvantages for the seller only, but there are other disadvantages for the buyer. The biggest disadvantage to the buyer in my opinion is the lack of inventory. We are already in short supply, and even shorter, approaching nonexistent supply for owner finance. That means the buyer has very little to choose from, and may be stuck with a home they really don’t want, or can’t afford just to make the terms of the owner finance work. The buyer must determine if this is the only route, even after credit recovery, the buyer can take.

With regards to the lease to own situation, this is very similar. However, the buyer may not have credit issues, but simply wants to learn about the area before moving into a purchase. Though the risk might be minimized on the credit aspect for the seller, the other terms remain the same. Even worse, they don’t have the initial cash deposit they would with the owner finance, which would come usually in full payment after the end of the lease term. Moreover, the same inventory and choice issues remain the same for the buyer. The buyer is looking for a home they will enjoy leasing, and living in, all in one. Where neither opportunities are common, this drastically reduces the availability in the number of homes to choose from, both for rent and for sale. In this circumstance I would advise the buyer to find a more affordable rental option, and keep their options wide open for a purchase after their lease is up and they have determined they want to live in the area.

On a final note, market conditions can drastically change the amount of inventory. With the two real estate markets in recent history though, it has not. In the wake of the downturn, a number of sellers had mortgages that far exceeded market value. They did not have the option to owner finance because even the initial or final payment would not recover their initial investment. Remember, in most cases an owner can only owner finance if they own the real estate out right. In today’s recovering real estate market with low inventory and supply, it simply does not make sense for a seller who can easily sell their home at market rates today, without the hassle of going through the owner finance situation. Since other markets are also doing reasonably well, the cash they would receive on a full purchase sale could be reinvested at a substantial return.

There are circumstances I did not touch on in this article. If you find yourself in this situation as a buyer or seller, and would like any free advice, don’t hesitate. Also remember to keep your eye on the Teton Valley Realty blog for other information on the topics above!

What can you tell me about water wells in the area?

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We have good water. It’s full of minerals, which also causes some of the hard water deposits you see in your bathrooms and kitchens. I know we are not talking about soft water systems, but most people don’t realize that there’s a good possibility your home either has a system in place, or hookups ready for a system to be installed. Almost all of the newer constructed homes have hookups – remember the plastic pipe loop next to your washer and dryer? That’s what it’s for. I’ll save you from what I know about ion exchange in regards to how these systems work. Back to wells. I decided to do this write-up because of an increasing number of buyers interested in lots that are uncertain about the cost of drilling a well, and bringing in other utilities. As far as the cost, it’s pretty simple. I interviewed a few local well drilling companies, it’s about $40/foot including a well casing. The Idaho Department of Water Resources requires a steel casing, that is tagged with a well tag number. Almost every well drilled in recent history is then recorded with the department. The department’s website, idwr.idaho.gov provides a well driller’s research tool in which you can pull up information on each well drilled that has been reported, called a well driller’s report. The well driller’s report will tell the approximate site, the types of ground materials, and at what depth. As you would guess, it also reports the exact depth of the well. The reason I am telling you this of course; the next logical question after understanding the price per foot, would be the depth. Usually, you will find a neighbor who has a well in the same area in which you are thinking about drilling a well. Now, there are no guarantees your well will be the same depth of your neighbors, but you can bet that it will be pretty close. The well driller’s research tool can be daunting unless you understand how to search by township and range, but there is also a way of searching by last name etc. On a final note, you might be thinking to yourself, “Why don’t I just buy a lot in town and hook up to the city water and sewer system?” You can! Just remember, the city will charge a hook up fee for water and for sewer, and it’s not all that cheap. The cheapest way of doing it? Locate a lot in a development with a pre-existing community well system. They’re usually pretty reliable, and fairly inexpensive to hook up to.

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