BPOs a 'gateway to fraud'

Submitted by Deborah Madey on March 18, 2010 - 6:28am.

Mike,

Your argument against Realtors is flawed. You state that Realtors are marketers and not analysts. No marketing whiz can successfully market an overpriced property. Successful Realtors are skilled at pricing, marketing, problem solving, and coaching. A Realtor's successful campaign to sell any property demands proper pricing. Realtors doing BPOs are full time and know their markets. Why do you assume these Realtors are weekenders?

Factually, most full time Realtors:
1) spend more time in the market and know the market better than most appraisers
2) spend more time pricing a given specific property than an appraiser does in pulling his comps, visiting a subject property and writing an appraisal.
3) have seen the inside of the comps and have first hand knowledge of the similarities and differences to a subject property.
4) hear pricing feedback from prospective buyers and other Realtors about both active and recently sold properties.
5) must defend and validate their pricing opinions on a daily basis to both sellers and buyers. Full time Realtors get a lot of practice at this.
6) establish their price opinion from market data, and do not have a pre-determined price point (sales contract) from which to begin.

I understand the legal authority vested in appraisers. I fully understand risk management, and provide all my disclaimers whenever I talk "price" that I am not an appraiser. My referral to a consumer to hire an appraiser is clearly not a testament to my confidence that an appraiser will provide an accurate valuation. Quite the contrary, I am quit skeptical. Because I understand the rules and abide by them does not mean the rules are right, that they protect the pubic, that they are good for banking, economy, buyers and sellers, or that I agree with them. A system that vests high authority in determining market values to individuals who are disconnected from the market is seriously deficient.

I have seen too many bad appraisals coming from appraisers who have not physically been inside the comps (they rarely have), are from out of the geographic area, spend little time in the market. Many appraisers, frankly, know absolutely nothing about the market even if they live in the local market. I have seen two appraisals on the same property come in with valuation differential in excess of 24%. Both of those appraisals came from appraisers local to the subject property. Local does not guarantee accuracy.

The HVCC process puts us at the mercy of the luck of the draw, often giving us appraisers who perform bad appraisals with undeserved authority. The HVCC medicine is worse than the ailment. Our entire valuation system needs a serious overhaul, and HVCC is not the answer. We needed an overhaul before, and have gone from bad to worse.

When interior access is not possible, the role of market knowledge becomes increasingly important when delivering a price opinion. Most of the time, the full time Realtor trumps the appraiser on market knowledge.

There are competent appraisers, just as there are competent Realtors. I have seen too many bad appraisals and see it dangerous to bestow godlike credibility on appraisers because they have a state license and a title.

Deborah Madey- Broker
Peninsula Realty Group,Inc. - New Jersey
Deborah@PeninsulaFirst.com

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Submitted by Mark J. Kiklis on March 18, 2010 - 6:51am.

Recently, I saw a request for a drive-by BPO of a SFR with such extensive requirements & long/detailed BPO form that it was effectively an appraisal without the cost approach. . .and $50 was all the compensation that was being offered! $50!

Why pay $350 for a full appraisal of a SFR when they can pay $50 for a drive-by or (hold your breath) $80 for a BPO with an interior inspection!?

As long as struggling real estate agents are willing to accept such poorly compensated assignments lured by the dangling carrot of obtaining an REO listing, the sweat-shop market of BPOs will continue to thrive.

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Submitted by Sandra Mathewson on March 18, 2010 - 6:58am.

Deborah is absolutely correct on all points!
I have been doing BPO's for 4 years and I am NOT a weekender. So far this year I will close 14 sides.
The main reason I continue to do BPO's is not because I need the $45 or need something to do. I do them because it gives me superior information, sharpens my pricing skills and keeps me at the top of my "niche". I know the areas, subdivisions, builders, how many times homes have been on the market, sold, neighborhood problems etc. I know the issues at city hall that will impact homeowners. I know our market statistics, average price, absorption rate, number of REO's, number of short sales. Appraisers take the brick and mortar approach and are unable to take all those issues into account in the appraisal.
Right now a house "appraised" at $145,000 will not sell for that. What good is the appraisal? The BPO also forecasts the "projected" sale price in one, two and three months AND takes into consideration the economy, number of REO's, unemployment etc. When I do the BPO on a home before the lender forecloses, he can't list it today which is the "appraised" number. It may be 2, 3 or 4 months before we see this home listed and the value will be impacted during that time. Show me an appraisal that will give variables? Our newspaper headline yesterday said "Lyon County Unemployment Off The Charts". What good is an appraisal if no one can buy it?

Sandra Mathewson, ABR,CRS,GRI,CNHS,RCC
RE/MAX Complete

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Submitted by Sandra Mathewson on March 18, 2010 - 7:04am.

Mike,
What makes you think we "try" to get the listings and are "struggling". I have enough business I don't need REO listings.
The "struggling" agents are the Monday morning quarterbacks.
I notice you didn't leave any of your detailed information?

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Submitted by Deborah Madey on March 18, 2010 - 7:16am.

Mark,

As far as your comments about the low fees paid to Realtors, I agree. Banks should pay qualified Realtors more than they do for their time and expertise.

Deborah Madey- Broker
Peninsula Realty Group,Inc. - New Jersey
Deborah@PeninsulaFirst.com

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Submitted by Deborah Madey on March 18, 2010 - 7:26am.

Sandra,

Thanks for your remarks and for the mention of neighborhood and town infuences on values. I left that off. Please allow me to add to my list, with credit to Sandra for calling this to our attention.

7) Realtors have a heightened awareness of township issues, and area influences. A limited ist of examples could include landfill locations and associted odors, traffic patterns that change seasonally or at a time of day, municipal plans that can impact schools, parks, ease or restrain builidng permit qualifications, road widenings or closures, predicted or coming business openings or closings. etc. The list goes on. Appraisers are substantially out of touch with these exteral influences on value.

Deborah Madey- Broker
Peninsula Realty Group,Inc. - New Jersey
Deborah@PeninsulaFirst.com

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Submitted by Richard Johnston on March 18, 2010 - 2:13pm.

Mike,

I agree with you 100%! I can't believe people in our profession work 2-3 hours for only $45. Over the last few years, I've even received calls from investors asking me to value properties for free.
FREE?

I did a BPO once and hated it. Never again...

Sincerely,

Richard M. Johnston, GRI, ABR, e-Pro
ReMax Grand Central
818-730-4128 Direct (Mobile/Text-SMS)
http://www.estates.la

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Submitted by J. Craig Anderson on March 18, 2010 - 6:17pm.

Deborah -

I often hear Realtors speak about the unfair public perception that they are something less than skilled professionals applying their expertise on the client's behalf.

Is it not, then, a bit hypocritical to say that Realtors can appraise property just as well as an appraiser? Isn't that the same sort of thing that makes Realtors bristle when it's directed at them?

Craig Anderson
Real Estate Reporter
The Arizona Republic
(Just here to learn -- I won't quote you!)

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Submitted by Michael Shapiro on March 19, 2010 - 12:34pm.

Deborah,
Your general argument is that Realtor's are better than Appraisers at appraising, well, just because they are Realtors and are therefore more suited to value property… Being an Appraiser, I work with fact based data to develop an opinion, not base facts on opinions, so find it hard to argue with such a purely bias opinion as to the knowledge of a Realtor vs. Appraiser. I am not here to critique Realtors for selling property, as you have with appraiser’s appraising property. I am criticizing banks for using BPO’s for purposes they were never intended to be used for. I would argue, as I did with my letter that BPO's will be the next gateway to fraud. Lenders are purposely basing risk management decisions solely on BPO’s that have no standards, checks and balances are thrown out the window and are being performed , in many cases, by Realtor’s that have absolutely no experience or training performing such a high risk valuations. A BPO does serve a purpose as a pre-listing tool, etc; however I feel it has no business being relied upon by lenders for risk management or lending decisions. All of your complaints against Appraiser's could just as easily be turn around again Realtors, as we know they are many times. I won't go that road and it wasn't the point of the letter.

I will agree however that HVCC has caused very serious problems for ordering appraisals, picking appraisers based on fee and turn time instead of competency. AMC bills are being passed throughout the Country to get a handle on this.

Sandra,
Distress indexes , External influences, zoning, subject condition, listing type differences, building quality, functional utility, off-site utility and improvements, highest & best use, surround plat uses, appreciating/depreciation trends, neighborhood present land uses, pertinent neighborhood information, Median Sale prices over the past 12 months along with trend lines, employment within the area, greater market trends, Median DOMs of closed sales/active listings & pendings, cancelled listing data, expired listing data, the median Sale Price as a % of list Price in the neighborhood, months of competitive inventory on the market, etc are ALL just part of many things considered in the appraisal process. To claiming this information is not analyzed by a competent appraiser is factually incorrect.

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Submitted by Deborah Madey on March 20, 2010 - 1:32pm.

Craig,

It's not the same thing at all. It's not hypocritical.

First, I agree w/ the public, as well as other Realtors, and other real estate pros that there are too many incompetent Realtors. If I could write the script, I would want to see the barrier to entry for real estate licensees raised substantially, provisional licenses until further education and experience was attained, and mandatory CE far beyond that which currently exists in any state. Still, this would not guarantee competence. It would weed out a lot of the licensees who are not serious. I don't get to write the rules.

Just as I find deficiencies with the "Realtors" (actually real estate licensees) - I also find the same with appraisers. The difference between a member of the public and myself is 15 years of understanding the industry, mentoring agents, extensive education (as student and teacher), leadership positions within several Realtor organizations, holding a broker's license in multiple states, reviewing and seeing many appraisals over several years both in my own transactions and those of my agents. That background provides me extensive insight and exposure, and results in a qualified opinion.

I have seen too many bad appraisals. The appraisers who assert their superiority over Realtors are frequently the ones with the worst appraisals.

While there may be good appraisers out there, the ability to locate one, and speak with one is difficult. Try chatting with an appraiser about the market, comps, and asking an appraiser about their expertise or market knowledge. The response will be about their training and license - not about their understanding of the market. I have spoken with plenty of appraisers who have been entirely clueless about the market.

I can locate a competent Realtor. I know competent appraisers exist, but the lack of transparency and frequent attitudes of superiority make it difficult to identify them. Pulling a name from a hat, or AMC round robin, or AMC choice based on subjective or self-serving reasons, is far inferior to choosing a competent Realtor. The operative word here is competence. A bank, or individual, is far more likely to score competence when the selection criteria is relevant to skills, not just a license. A real estate license certainly does not equate to competence. And, neither does an appraisal license, regardless of the additional training required.

I fully trust the opinion of a competent Realtor and I know how to find one. And, there is no hypocrisy about that whatsoever.

Deborah Madey- Broker
Peninsula Realty Group,Inc. - New Jersey
Deborah@PeninsulaFirst.com

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Submitted by J. Craig Anderson on March 24, 2010 - 12:14pm.

Deborah -

Looking at it from the consumer's perspective, BPOs sound extremely problematic based on the situation you describe. It sounds like the chances of getting a bad BPO from a bad Realtor probably are even higher than the chances of getting a bad appraisal from a bad appraiser, because appraising (or price-opining, or whatever you want to call it) is not even the Realtor's primary area of expertise.

I'm sure you do have the ability to tell a competent Realtor from an incompetent one. But you can't be there to advise every consumer who's in the market for a home. The rules should be set up to protect consumers who don't know a good Realtor from a bad one.

Craig Anderson
Real Estate Reporter
The Arizona Republic
(Just here to learn -- I won't quote you!)

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Submitted by Michael Duhs on July 11, 2010 - 12:03am.

What we find is that commercial brokers are on the ground and they know values because brokers are listening to investors, owners, buyers, lenders and even interacting with appraisers.

Maybe residential is different than commercial real estate when it comes to BPO's. I find that Broker Price Opinion.com, Inside Evaluations.com, Commercial Broker Price Opinion.com, Commercial-BOV.com, Los Angeles Commercial-Real Estate.com, Commercial-BPO.com are some of the best commercial broker price opinion companies in the nation. Why? Because they rely heavily on market knowlege and they get up to the day market updates from experienced commercial brokers with over 5 years experience.

Michael Duhs
Managing Director
www.EastWestCommercial.com
(949) 939-8352

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