by Dan Krell © 2010
A broker price opinion (also known as a BPO) is not an appraisal, nor is it a substitute for an appraisal. The BPO is the lender’s way of getting a “snap shot” of the subject market area. A BPO (not unlike a CMA) is an analysis to assist a buyer or seller in deciding a home’s offering, or listing price. BPOs have been used for many years, and for various reasons that range from quality control to making decisions on mortgage portfolios and loss mitigation.
A BPO is not a perfect tool and is limited to the information provided as well as the people involved in the process. The shortcomings that are inherent in the BPO process begin with the lender that orders the BPO and is extended to the BPO company that “farms” the BPO out to real estate agents, as well as to the agent that completes them.
The problem first begins with the lender who is usually not in the same market area as the subject property. Seeking a way to get a snapshot of a home’s “value,” the lender will pay for a broker price opinion. The lender’s employees who order and use the BPO is sometimes mistaken to think that they are getting a report that will say what the home will sell for, when actually the BPO is just an offering of possible listing prices based on area comparables.
The shortcomings of the BPO are extended to the BPO company (third party) that hires the real estate agents to provide the reports. BPO reports are typically completed over the internet these days using electronic forms that can limit the amount of information that is provided. A typical BPO report requires a limited specific number of comps (listing and sold comps), regardless of the availability of neighborhood comps; the report may have to exclude additional available comps while sometimes use comps that are hardly comparable to the subject property. The online forms used to complete BPOs also limit the amount of information that is input; which can limit the actual market data and conditions that is sought from the lender.
Once submitted, the BPO typically undergoes a review for “quality.” BPOs are usually reviewed for procedural standards as well as comp quality. Interestingly, quality reviews are usually conducted by reviewers not familiar with the subject market area; it is quite possible that some quality reviews are not only conducted in another state, but in another country. Ironically, quality and substance is sometimes sacrificed for quantity or a “specific result.” (Past agent complaints, posted on agent bulletin boards, indicate that they realize some of their reports are altered after submission by someone other than themselves).
The ultimate shortcoming of the BPO stems from the real estate agents who complete the BPO. In recent years, with the explosion of short sales and foreclosures, there has been an increase in the need for more agents to complete BPOs. Some agents seek out BPOs because they are under the impression that they will get an REO listing, other agents seek out BPOs because they solely rely on the BPO business as income, while others just take on BPOs to supplement their brokerage income.
Time and care is necessary to complete a quality BPOs. Many real estate agents performing BPOs have little or no training in conducting BPOs; many agents do not have the expertise to provide a CMA to a home owner let alone completing a BPO. What may be more alarming is that some agents boast about the number of BPOs they complete per week (I recall one agent boasting that they complete over 100 per week!).
“Turn’em and burn’em” should not be the motto of anyone in this process. Because quality BPOs are useful and needed, the future of BPOs may rely on local licensing or registration which can ensure competence of those performing BPOs as well as maintaining standards of those who use them.
This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell