External Analysis ( child care )

Threat of Substitutes

As stated briefly, there are no substitutes for appraisers because of the license, training, and experience required to conduct an appraisal. However, for those buying a property in cash, there is no legal requirement for an appraisal, but some still prefer to get a full inspection of a property. Threats of substitutes meet approximately the same customer needs but do so in different ways (Barney & Hesterly, 2019). This refers to when products or services have better quality and improved efficiency at a lower price. The appraiser’s job is very important and is the center of the whole lending process, but because of emerging technologies, reduced prices, and quicker prep times, their jobs are declining. Substitutes for the work of appraisers would include Comparative Market Analysis (CMA), Broker Price Opinion (BPO), and Automated Valuation Models (AVM).

A Comparative Market Analysis (CMA) is an estimation of the listing or purchase price of a property offered by real estate brokers, but not called an “appraisal”. A CMA disclosure statement is required so that the information provided is correct. “No matter how well done, lenders will not substitute a CMA prepared by a real estate licensee for an appraisal” (Miller, 2019). Appraisers are paid regardless of a sale, but a CMA is a service that a broker hopes to gain a fee from.

Broker Price Opinion (BPO) is a less frequently used tool that provides a report of home value by local real estate brokers. A BPO is “an estimate that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property’s condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model” (Miller, 2019). Drive-by valuations are examples of BPOs; they are faster and cheaper than appraisals, but homeowners are unable to provide information regarding the interior of their home.

Automated Valuation Models are, “computerized models used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer’s principal dwelling” (Miller, 2019). AVMs include online property sites that hold information of value estimates similar to the work of appraisers. The sales price, square footage, photos, the price per square foot, past listing prices, and the number of bedrooms are posted on the sites (Miller, 2019). An online property site’s goal is to present the complex information from AVMs to their site visitors, on a succinct and manageable platform. Popular websites used are Zillow, Trulia, Realtor.com, and Homes.com. These property sites are careful to clarify that an AVM is not an appraisal. For instance, Zestimate on Zillow states, “is not an appraisal, it is a starting point in determining a home’s value” (Miller, 2019). They recommend using additional resources such as a CMA and a licensed appraiser to conduct a physical visit.

All of these examples are once again only substitutes for people who do not need a loan from the bank and an actual appraisal done on the property. These substitutes are for people that want similar information that would originally be done by an appraiser. Using these different resources, CMAs, BPOs, and AVMs, are methods of satisfying a customer's need for home valuation.