Broker Price Opinions

Last Spring I attended and passed a BPO (Broker Price Opinion) class. Like many others, I am committed to improving my ability to objectively create accurate price opinions, and we learned a few things in this relatively new class.

So what exactly are BPO’s and what are they used for?

Home appraisals, only prepared by licensed appraisers, are detailed valuations done to support lending and investing decisions. Certified Residential Appraisers are much better trained and qualified (210 hours of classroom training) to arrive at estimations of price.

That being said, I do believe that they sometimes lack or ignore local knowledge on important elements like location and buyer preferences, and over time have become too conservative (giving low valuations) to avoid hurting their customer, the banks.

Most listing real estate agents try to help influence which comparable properties or ‘comps’ the appraiser uses. So the appraiser must figure out if “local knowledge is thus gained” versus “a conflict of interest bias was inserted” when the selling agent tries to make sure the contract price is supported so that the deal can close, always good for the seller (and good for commissions).

CMA’s (Comparative Market Analysis), done by real estate professionals, are a less-intensive study done to help sellers or buyers assess the likely market value of a property by viewing it alongside comps. BPO’s are essentially the same as CMA’s, however they are done to provide a market price to aid banks in pre-foreclosure decisions. The client is a bank instead of a buyer or seller.

Well the banks, not very good at managing portfolios of foreclosed real estate, are very good at scrutinizing costs. It could be perhaps $50 in cost for a BPO versus maybe $500 for a full appraisal (these are purely example costs). Turns out there are plenty of real estate professionals with some extra time out there willing to quickly and cheaply churn out these BPO’s. Home appraisers are quite upset.

The Appraisal Institute along with others argue, in their defense, that “real estate agents who perform BPO’s are not independent, have not been properly trained, and have a bias towards providing quick results for a fee”. They also point out the corresponding increase (since BPO’s have become popular) in instances of short sale mortgage fraud. See government program stirs up bpo debate for the full blow by blow.

I am compelled as a Realtor and a Managing Broker to stand up and say… I agree with the Home Appraisers. I can offer no defense to counter their claims.

In the survey-level BPO class, we received eight hours of training including zero hours of field experience. And guess what - everyone passed the test. Now if we watch a one hour video online and send in $199 each then we will be “certified and given preferred status in the BPO company network.” This prepares us? Now we’re good to go? Yep.

We’re immediately ready to do (mostly) drive-by BPO’s for banks on a quick turn-around so the about-to-be foreclosed homeowners don’t know that the bank is beginning foreclosure preparations. And for obtaining the drive-by exterior photo and just an hour or so behind the computer we could make perhaps $50?

In most cases we wouldn’t view the inside of the subject property or the comps, yet we’d make educated assumptions on the conditions of every one, which drives our eventual price opinion. Say what? If I can’t see it, how can I accurately value it? I’m sorry but I cannot, so I tip my hat to someone else who can.

Before you compare this BPO work to repo man pay, also consider the following:

Some creative agents are placing craigslist ads to pay any local person to go out and take and send the exterior digital photos, so they don’t even have to leave the office.

Some well-connected agents have outsourced the data entry BPO work to ‘virtual assistants’ (people in third world countries). Oops, some were then caught sharing MLS passwords to allow these virtual assistants to go ahead and pick the comps and obtain other information to complete the BPO.

So who really needs local knowledge? One broker, getting outsourced BPO’s done for less than $10, was caught via the MLS access IP address trail and was severely punished. All banks carefully measure the accuracy of all BPO providers (price opinion ‘prediction’ versus eventual ‘actual sales price’).

So the impacted banks actually know how accurate these virtual assistants were compared to legitimate BPO’s. Seriously, I’d really love to see just how well they did! 

Perhaps you’ve heard that BPO’s have opened the door to a form of mortgage fraud perpetuated by scrupulous real estate agents. It is called ‘flopping’ and it is projected to affect more than 1 percent of all short sales. It goes like this: Deliver a low BPO, convince the bank to sell low, buy the short sale property from the bank, and then immediately sell it for a profit.

Oops, some were caught when banks noticed two closings on the same property occurred on the same day or only one day apart. See bloomberg - home flopping schemes spread

Not that there’s no high road here, I’m sure there are some qualified and well-intentioned real estate professionals out there performing BPO’s. But too many real estate agents just can’t resist jumping into the BPO business, despite a lack of training and the possible conflicts of interest.

Should we be allowed to consult (sell our price opinions to) banks? Who can stand in the way, when there’s a dollar to be made?

Not me. While I’m always in favor of increased education, I won’t be placing the BPO designation next to my name, and Exclusive Buyer Brokers LLC won’t be competing for BPO’s out there.

We will, however, try to be among the very best at offering value opinions on every property we view and openly sharing these with our exclusive buyer clients…