Appraisal VS. BPO

By
Real Estate Agent with Troop Real Estate Inc.

Pricing of REO properties is critical if the bank is seriously trying to get it sold in 30 days. This statement may seem obvious to those of us in the business but it's not as easy as one might think. When a Lender assigns a property, one of the first tasks to perform is a  Broker Price Opinion or BPO. This requires pulling comps in the area of both listed and sold properties and coming up with an opinion of value. This is a full BPO with interior and exterior photos. The agents need to take into account any repairs the property may need and come up with an "as is" price and an "after repairs" price. The lender also sends out an independent appraiser to evaluate the subject property. If the agent's BPO value and the appraiser's value show too large of a discrepancy the lender will hire another local agent to perform another BPO as a "second opinion". The lender will make the final decision as to what the listing price will be. We as agents have a great deal of influence as to the outcome of this price point, but the appraisal seems to hold equal weight. I've been told by an asset manager that if the appraisal is higher than the BPO, but not too different, they will sometimes split the difference, which might overprice the property. Overpricing problems seem to occur because of a difference between agents and appraisers of how the opinion of value is arrived at. Agents know the market. We look at the history of a property, how many days was it on the market before it sold, what is the mindset of the buyers in the local area, and what financing options are available. It seems emotion plays into it. Appraisers measure the exterior of the building, and count the number of rooms,(actually there's a lot more to it), but it seems more mechanical. Now I'm not blaming appraisers for the difference of opinion. Quite the contrary. For years we as agents have been pounding appraisers to come up with a higher number to satisfy lenders, especially in a rising market. I think appraisers have been conditioned to produce a "lending based" opinion of value. There are other types of opinions depending on the purpose of the appraisal. What about an appraisal for taxation value, for a divorce settlement, for a business opportunity that includes real property. How about  a "REO based" appraisal in a down market, taking all factors into account, including the fact that the subject property may not be listed for two months after the appraisal is completed. I know appraisers aren't supposed to try and predict  market trends, or assign a future value to a property, but I think if agents and appraisers were able to communicate we might see more aggressive pricing, quicker sales, and eventually a faster return to a "normal" market.

Rudy Detgen

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Ambassador
390,642
Pam Dent
Gayle Harvey Real Estate, Inc. - Charlottesville, VA
Realtor - Charlottesville Virginia Homes and Horse Farms

Rudy - It was useful to read your analysis of the different points of view between REALTORs and appraisere.

July 12, 2008 07:51 PM #1
Rainer
30,185
Rudy Detgen
Troop Real Estate Inc. - Moorpark, CA
Realtor, Real Estate Agent, Homes, REO - Moorpark, Simi Valley

Thanks Pam,

It's really true and something our industry needs to find a solution to. Realistic pricing is what I'm talking about. The market will adjust itself. I'd prefer  slight underpricing and have a bidding war, get it into escrow and have back-up offers in place.

Rudy

July 12, 2008 08:03 PM #2
Rainer
136,319
Terry Lynch
LAR Notary and Closing Services - Saint Clair Shores, MI

We are in a declining market. Appraisers put a lot of weight on sold comps, but in this kind of market you have to shift your focus to what's on the market now. What happened 6 months prior doesn't matter when the active listings are already well below the sold properties value.

July 12, 2008 11:47 PM #3
Anonymous
Anonymous
Anonymous

Thanks Terry,

I agree. What sold 6 months ago is pretty irrelevant in a down cycle.

Rudy

July 13, 2008 01:00 AM #4
Rainer
1,275
Phillip Dwyer
Dwyer Home Appraisal, LLC - Las Vegas, NV

Rudy,

Let me first start off by saying I agree with you in respect to the aggravation that can occur in the pricing of REO.

However, the intent of a BPO is and should be different from an appraisal.  A BPO is an opinion of what price a Broker would anticipate listing a property.  This isn't and should not be an opinion of value.  I think if you were to ask your state licensing board about the difference, they would probably agree.

Additionally, the appraisal is completed based on the client's "problem" and the scope of work necessary to come up a solution to that problem.  The value usually sought by the client's for REO is market value, and some sort of quick sale or liquidation value.  The appraisal will contain the definition of the value sought and report an opinion of value that corresponds with these parameters.  This can be an issue where the normal marketing time for the area is well over 6 months, and the client asks for market value only.  The appraiser will need to consider the length of market exposure of all recent sales.  Additionally the listings, pendings, withdrawals, and expireds will be examined for relevance to the valuation.  Is there a 2 tier market where sales exposed to "typical" marketing times sell for higher prices than those with less market exposure? 

As you mentioned, the client ultimately makes up their mind where they will list the property.  Every lender client and every property are unique.  Some clients have to market the property immediately for a number of reasons.  Some clients may be willing to risk longer exposure to recover more from the asset.

The best way for appraisers and agents to work together in this market is to share ideas, ask questions, accurately enter data, post to your blog, etc.  I don't think we should be trying to get the same "values" on our respective reports, though.  Our clients are better served by the correct use of BPO's and independant appraisals.

July 16, 2008 06:50 PM #5
Rainer
30,185
Rudy Detgen
Troop Real Estate Inc. - Moorpark, CA
Realtor, Real Estate Agent, Homes, REO - Moorpark, Simi Valley

Phillip,

Thank you for the response. Well said. I agree that communication and sharing of ideas is the direction we need to be heading. It is refreshing to know there are appraisers such as yourself who take all factors into account for their client's intended purpose. The purpose of my original blog was to do what we are doing here. Discuss the differences and communicate so we can better serve the client.

Thanks

Rudy 

 

July 16, 2008 08:13 PM #6
Rainmaker
186,419
Doris Freeman
RE/MAX REALTY SOURCE - Jackson, TN
Broker/Agent, Realtor, Madison-Gibson-Crockett

Thanks again Rudy for some good information, I am lucky to have an appraiser on my team and do utilize him when necessary to ask questions, and I have access to his computer program that does adjustments when comparing the different homes.  I forwarded your post to him to read, I know he does take all factors into consideration, and it does make a difference in this market if there is a contract on the property, because we know that today homes are not necessarily selling for fair market value.

Thanks and Have a Great Day

July 19, 2008 02:00 PM #7
Rainer
12,403
Paul Jones
Kansas City Regional Homes - Olathe, KS
PIC Properties - Kansas & Missouri
I do many BPO's and I find the opposite problem where my listed values are crazy high from the most recent sold comps. This makes it very difficult to stay in the guidelines and still get a realistic list price. Thank you for all your valuable insight.
August 10, 2008 09:46 AM #9
Rainmaker
218,623
Eric Egeland
RE/MAX SUBURBAN - Libertyville, IL
SFR, e-PRO, CDPE

Thanks for the Post Rudy.

You have some great points & there is a big difference between an agent pricing to sell and an appraisal

August 15, 2008 11:52 AM #10
Rainer
3,389
Julie Adamson
Keller Williams Realty - Santa Rosa, CA

Personally, I am sick and tired of being the BPO queen and not getting the REO business.  I have 20 years in this business and I feel like a real estate prostitute now, and I am getting to where I hate my job.  All these BPO's and deadlines.  Who needs it?

Face it . . .  we are being used and abused by lenders who don't care one bit if they are using us or are rude.  My life was much more fun before this downturn happened.

August 16, 2008 01:00 AM #11
Anonymous
Anonymous
Anonymous

Julie, so now you're the "queen" --> Gee! I thought I was the queen of bpos! smile  Well said.

September 08, 2008 04:25 AM #12
Rainer
30,185
Rudy Detgen
Troop Real Estate Inc. - Moorpark, CA
Realtor, Real Estate Agent, Homes, REO - Moorpark, Simi Valley

Hi Eric,

Thanks for posting the link to bpoagentswanted. I registered with them a couple of months ago. I'm certain others reading this post will check them out as well. I haven't received any work from them yet, but who knows. If you don't register you can bet you won't see any work from them either. You have the right strategy, register with as many as you can and when you start getting assignments, do it fast and good and you'll get more work.

Rudy

 

October 13, 2008 07:25 PM #14
Rainer
3,290
Pam Brown
Leconte Real Estate, Llc - Sevierville, TN

Rudy,

 

Yes, this market is a tough one. I have just recently started doing BPOs and listing these properties. It is amazing with only a minimal amount of time, and listing with some top comanies I have received multiple BPO orders, and many listings. It is definitely what is happening right now in the economy. I have a full time assistant to help with the paperwork & tracking of these properties. I guess we have to do what makes us the $$$, but I hope things get back to normal. Real Estate in my area (The Smoky Mountains in TN) used to be like taking an order at a restaurant we are that busy! I loved it, and now we are all just having to work a lot harder. Hang in there. Lets just give each other support and we will get through this.......

October 21, 2008 10:54 AM #15
Anonymous
Anonymous
suzanne

I have a question that maybe you can help.  I have an offer in on a house since 12/30/08.  The offer was in at $330,000.  The BPO came in at $300,000 and the appraisal came in at $330,000.  Should I be able to lower my offer.  I have been waiting for this short sale to go through for over 5 months now...

June 02, 2009 11:01 PM #16
Rainer
30,185
Rudy Detgen
Troop Real Estate Inc. - Moorpark, CA
Realtor, Real Estate Agent, Homes, REO - Moorpark, Simi Valley

Hi Suzanne,

Anything is negotiable but it's really hard to say based on the information you have given me.

The lender may or may not accept your offer even at $330,000. It depends on what their loss will be and whether or not they might be better off foreclosing on the property.

The buyer's lender, if there is financing involved,  will base their loan on the appraised value.

 

June 03, 2009 12:42 AM #17
Anonymous
Anonymous
Swalker

My husbana and I bidded on a short sale on Nov. 29, 2009.  On Jan. 11, 2010 a BPO was done.  We have not heard anything from the sellers agency,  What could possible be going on?  I am scared to death that we will wait several months and never hear anything else or get turned down, 

January 24, 2010 04:24 PM #18
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Rudy Detgen

Realtor, Real Estate Agent, Homes, REO - Moorpark, Simi Valley
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