Fairness Opinion – Why You Need One
Fairness Opinion – Why You Need One
The Batterymarch Insider
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Fairness Opinion – Why You Need One
“In general, the valuation of higher-end properties can be elusive – they are less liquid and brokers often intentionally overprice properties to secure listings.”
Property Spotlight – On the Market
401 Beacon Street, unit 4 – We Want to Love It, But… – Offered at $4.95 Million ($1,720/sf)
Well Bought/Well Sold
50 Liberty Drive, unit PH1B – An Ill-Advised Price – Well Sold
287 Commonwealth Ave., unit 4 – Best Deal of 2022 – Well Bought
Fairness Opinion – Why You Need One
In our special report “The Boston Real Estate Oligopoly, Stubbornly High Fees & Other Consumer Harm,” we highlighted anti-competitive activities in real estate brokerage. We can’t take credit for uncovering these consumer abuses; it seems that there are always a handful of class action lawsuits or Department of Justice antitrust actions aimed at leveling the playing field. So what can consumers do to protect themselves? One thing buyers can do is get a third party “fairness opinion.”
Fairness opinions are standard operating procedure in the investment banking world. Any time a company makes an acquisition they get a fairness opinion from a qualified third party that has no other interest in the transaction. Banks can’t make a loan without getting an appraisal of the property from a licensed appraiser (and they still demand 20% down). So why wouldn’t a buyer seek their own independent fairness opinion?
Fairness Opinion vs Appraisal
Appraisals are generally done on behalf of mortgage lenders by state licensed appraisers. Appraisal reports are a useful valuation tool and stick to a very stringent format. Importantly, only a state licensed appraiser can perform an “appraisal.”
A fairness opinion (or broker’s opinion of value) is performed by a licensed real estate broker in the ordinary course of their business when advising clients on the purchase or sale of real estate. Fairness opinions tend to be more subjective vs a formal appraisal and are not intended for lending activities. A fairness opinion cannot be referred to as an “appraisal.”
Who Needs a Fairness Opinion?
Since Massachusetts allows dual and designated agency (where the same agent or broker represents both the buyer and seller in the same transaction), we see it as essential for buyers in those situations to have a second set of eyes look over their transaction. In general, the valuation of higher-end properties can be more elusive, owing to less liquidity and brokers intentionally overpricing properties to secure listings. Overpriced listings are a serious problem; we’ve highlighted some current examples in the Boston luxury market.
A comprehensive fairness opinion goes beyond valuation analysis and can help avoid post-closing buyer’s remorse by highlighting nuances of a property that listing agents hope you don’t notice or things that building inspectors aren’t looking for. Given that Massachusetts is a buyer beware state, we’d say that anyone working with a traditional sales agent should seek a fairness opinion.
Contact us to learn more about fairness opinions and our buyer rebate program. If nothing else, you’ll get a good sense about what you’re up against as you navigate the world of real estate brokerage.
Property Spotlight
Batterymarch Group is focused on buyer representation, so the highlighted listings are not ours. These are our opinions, so take them with a grain of salt. We’re happy to set up showings of these properties, offer our valuation analysis, and assist with preliminary renovation budgets when needed.
401 Beacon Street, unit 4 – We Want to Love It, But… – Offered at $4.95 Million ($1,720/sf)
DOM – on/off market since 2017, Taxes $53,627/year, Monthly Condominium Fee - $2,297
We go back and forth on this 2,811 square foot, 3-bedroom unit. We want to love it as it has many attractive features, but every time we see the unit our enthusiasm dwindles. Price has been the biggest buzz kill, but beyond price, the layout feels off, the celling height feels low, and it’s on the wrong side of Beacon Street. We also have concerns about the long-term costs of operating the robotic parking system.
We did a little digging and there’s been some litigation between the developer and contractors. While disputes between developers and contractors are somewhat common, they necessitate more intense due diligence for a buyer. In our experience, when contractors aren’t getting paid, there may be quality issues lurking.
The seller recently dropped the price by an additional 10%. It’s now priced 25% below the original asking price of $6.6 million. At $1,720/sf for new construction, the apartment is getting more tempting. Still, nearly $5.0 million for a less than ideal unit on the non-waterside of Beacon? That’s a big ask in our book.
Don’t fret if you miss out on unit 4, the developer has two more nearly identical unsold units. Those units are currently rented, but we suspect that the developer would love to unload them ASAP and put this nightmare behind them.
Unit 4 at 401 Beacon Street is offered by Campion & Company and Cabot & Co.
Well Bought/Well Sold
50 Liberty Drive, unit PH1B – An Ill-Advised Price – Well Sold
Unit PH1B, a 3,619 square foot 3 bedroom at 50 Liberty Drive has a new owner, changing hands for $13.5 million ($3,730/sf) after just 43 days on the market. The seller didn’t get the $14.8 million that they were looking for, but our guess is that they are very happy with the transaction.
We profiled the unit in our “$10 million+ Condo Club” note last year. We liked the location and the view, but we struggled with the price. This is the third owner in five years and public records indicate that this price is roughly 30% above the April 2018 price.
We can say with a high degree of confidence that the downtown market isn’t up 30% in the last five years. The market is littered with condominium units where the owners would be thrilled to get 2018 prices today. And yes, it is sketchy that someone flipped the unit after just a month of ownership in 2018 for a $1.7 million profit.
This was a dual agency transaction, where the same agent “represented” both the buyer and the seller. In these situations, the agent doesn’t have fiduciary obligations to either party (the buyer or the seller) – a practice that is illegal in many states.
Massachusetts requires that the parties to dual agency transactions consent, in writing, that the dual agent will not have the ability to satisfy fully the duties of loyalty, full disclosure, reasonable care, and obedience to lawful instructions. Why would anyone ever agree to that?
As a matter of policy, Batterymarch does not engage in dual or designated agency transactions. We’d say that this was an ill-advised price, it was very – Well Sold.
287 Beacon St., unit 3 – Best Deal of 2022 – Well Bought
As Boston’s only dedicated buyer’s broker exclusively focused on the downtown luxury corridor, we find ourselves constantly questioning value. That wasn’t the case with 287 Commonwealth Avenue, unit 4, a 5,263 square foot 6 bedroom Philly duplex which sold for $6 million ($1,140/sf).
We won’t rehash all the details here (see our note “A Compelling Back Bay Value”) except to say that this is an outstanding property and in great condition. The takeaway is that there are very good value opportunities in our market for well-informed patient buyers. Hats off to the buyer, it was – Well Bought.
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About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.
About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to real estate brokerage.