BluefoxToday blog : BPOs stoke controversy within the real estate industry

BPOs stoke controversy within the real estate industry

BPO, or broker price opinion, is a vehicle used by real estate agents to assess home values. Over the years it has become sort of a competitor to an official appraisal that mortgage lenders still rely on when underwriting loans. BPO can be a dependable gauge although it is less scientific than an appraisal. And it is much cheaper, costing around $50 each while a standard appraisal runs into the hundreds.  

With foreclosures and short sales playing now a large role in the housing market BPOs have become widely used. Mortgage lenders like them in these situations because they can be delivered quickly and are cost-effective. Besides, when a home is put on the market for sale under normal circumstances, the price is determined by the real estate agent doing the listing.  When eventually a sales contract is generated, the appraisal is then ordered by the lender to confirm that the value is actually there.

The controversy today is about BPOs allegedly undermining real home values, especially in hard-hit areas like Las Vegas, Phoenix, Miami and much of California. In the opinion of many appraisers and consumer organizations real estate agents often low-ball prices so that the property will sell promptly and when that happens they expect banks to give them more listings that will at the end turn into nice commissions. These understated transactions will then become comparables for appraisers, pushing overall price trends lower.

If this low-balling practice is true, it might actually help out in the big picture. The market is still saturated with inventory, everyone agrees on that, and the sooner it is moved the better everyone is off. Banks were earlier reluctant to bring prices down to where their foreclosed property would attract buyers, so obviously they are now changing their approach. When real estate prices and average annual incomes for a given area reach a workable balance, the marketplace becomes genuine and sustainable.

If this is the way to get there in a reasonable time frame, then be it. 

 

_______________________________________________________________________________

Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 15 commentsEsko Kiuru • April 03 2009 01:28PM

Comments

I teach my agents to include market statistics and trends when completing BPOs.  If you can demonstrate to the asset managers WHY you think the lowest three comps are the most apppropriate, it is much more accurate.  We use Broker Metrics, which gives great graphs and charts to include with pricing opinions.  It's a great tool for your buyers to see and understand maket information as well.  If you'd like to read more about foreclosures in general, I wrote a book and I have a website attached to it.  It is called Mangled Mortgage and was written for real estate professionals.  Enjoy!

Posted by Jon Sterling, Vivus Worldwide :: London, NY, LA, SF, Hong Kong (Keller Williams) over 10 years ago

Thanks for sharing this valuable information.

Posted by Pat Champion, Call the "CHAMPION" for all your real estate needs (Coldwell Banker Camelot Realty) over 10 years ago

Here in the Ozarks, it is hardly worth the effort to do a BPO.  We are so spread out, that it hardly pays to drive 25-40 miles each way to do one.  I turned down the last request when they only paid $25.

Posted by Joan Snodgrass (Midamerica Referral Network) over 10 years ago

Esko, I have only run into a BPO appraisal once, and that was done by a local lender that I send people to if they need a Bridge Loan, and they did one in that case.  But outside of that I have not run into them.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago

I am sure it happens on occasion but most banks want their properties aggressively priced anyways. Banks certainly do not want to have a bunch of inventory.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

I'm doing more and more of them.  I mean - drive by bpo - i'm kind of torn on them.  appraisals are a joke anyway. 

so different from what we know as agents on the street.

how many times have you driven up to a home and just said - "it's worth X".  Without ever having stepped foot in the home.

www.2familyhomes.com

Posted by Thomas McGiveron, Thomas McGiveron Lic. R.E. Broker Associate (Long Island Real Estate Market: Douglas Elliman) over 10 years ago

Jon,

Appreciate you giving the discussion more depth. Always welcome.

Posted by Esko Kiuru over 10 years ago

Pat,

Any time.

Posted by Esko Kiuru over 10 years ago

Joan,

That makes sense, especially at $25.

Posted by Esko Kiuru over 10 years ago

George,

The use of BPOs seem to vary, Las Vegas sees a lot of them.

Posted by Esko Kiuru over 10 years ago

Bill,

Banks are increasingly getting anxious to unload inventory, so a low BPO is no problem.

Posted by Esko Kiuru over 10 years ago

Thomas,

Some real estate agents are experts on BPOs and love doing them.

Posted by Esko Kiuru over 10 years ago

Esko, BPOs, CMAs, & apparaisals do NOT determine market price.  There is only 1 true way to gauge market value:  What a qualified buyer is willing to pay for a property at a specific point in time.  Which means a SALE.  So even if a BPO is low, the seller will get multiple offers on a low-priced property, raising it to the true value perceived by buyers.  We are seeing this all over CA right now with multiple offers on low-priced properties.

Posted by Regina P. Brown, M.B.A., Broker, Instructor (MBA Broker Consultants) over 10 years ago

Regina,

You are right on the money.

Posted by Esko Kiuru over 10 years ago
oReGnN uhlfhuxukplv
Posted by alhpambof almost 7 years ago

Participate