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Don't Be A Hero, Low Ball That BPO! - Response to Ken Harney

In a recent article in the Washington Post, Ken Harney suggests that real estate agents are low balling BPOs to get listings. I won't even address this since the thought of a BPO agent getting a listing from a BPO is pretty silly. There ARE agents who have gotten listings from their BPOs but it was based on how professional and accurate they were and not usually based on them doing something to make the asset manager look like a hero.

In response, Kevin McGrath on Active Rain explains that low ball BPOs are exposed quickly, countering the notion that:

Online, BPOs are hawked to real estate agents as a route to quick profits in a downturn. "This is the easiest and fastest way to make big money in 2009," says one Web site that promises agents "six figures or more" a year. The same site suggests that "bad times put you in the ideal spot" to rack up income by churning out BPOs for lenders.

I'm here to continue the argument. I think low ball BPOs are just what the country needs! In fact, I think that supposed low ball BPOs are saving our economy.

To understand my position, you first have to understand the short sale process and market conditions.

Let's start with the short sale process.

The cliff notes versions is this:

Home Owner is Upside Down
Home Owner contacts bank and finds out they don't care unless they are behind on their mortgage
Home Owner puts home on the market
Home Owner has had home on the market for 3 months and decides they might need a short sale agent.
Agent explains that they need an offer, any offer will do a this point.
Offer presented is on the verge of being called ridiculous, offer is submitted to the bank.
Bank takes the offer and evaluates it.
Time Passes
More Time Passes
Bank assigns a negotiator
Time Passes
More Time Passes
Bank orders a BPO
BPO comes in..... and from here the bank bases all of their decisions to counter or except or reject.

If the BPO comes in too high?

The offer is rejected, the bank forecloses. Through the process the bank loses additional money but here is where the market comes into play. Since this is a declining market, the home is worth LESS than it was when it hit the market now 6 to 9 months ago. The home may be worth 10% less in some cases maybe more.

However, the BPO agent reads the washington post and has decided to be a hero for the community and over evaluated this home. Surely, this will protect home values!

So now the bank is forced to foreclose and assign this to an agent who couldn't be more removed from the active market if they tried. The agent gets the foreclosure on the market with one photo.

Now the bank has to reduce the price in order to sell the home. In most cases, foreclosure will sell for far less than a short sale would have 6 months prior. Why? When price is the only thing selling the home, and the market is declining and dealing with your bank has become more inconvenient than buying from a regular owner, YOU HAVE TO DISCOUNT IT! (pardon the stream of conscientiousness here).

So the next time you do your BPO, don't low ball, give a true MARKET EVALUATION. This is something that appraisers are NOT trained to do. BPOs SHOULD take into account the market. SO in fact a "low ball" BPO might actually be reality, if you take into account HOW LONG the bank takes!

If you would like to contact Ken Harney about how wrong he is, please do at: KenHarney@earthlink.net.

Joshua Jarvis

direct : 770-374-4667
Atlanta Short Sales | Linkedin | Facebook | GA Real Estate Blog

Short Sale Specialist Network

Posted by Joshua Jarvis on 03/30/2009 05:05 AM

Comments (84)

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84 Comments on Don't Be A Hero, Low Ball That BPO! - Response to Ken Harney

MAR

You wrote, "This is something that appraisers are NOT trained to do."

The recent appraisers' guidelines require appraisers to consider and document market conditions, trends, etc. It's not your old appraisal that looked at 3 recent sales in the community. Market knowledge is now an integral part of appraisals. I looked at the new guidelines for appraisers and wondered why anyone would even be engaged in that business for the $400 or so fee that they charge. I do not envy the apprasers' job in this market with the myriad of types of sale, SS, Foreclosures, upside down sellers, in the mix.

That said, Mr. Harney's article was so off base it was comical. It would appear that he doesn't understand the dynamics of BPOs. Low BPOs have never, never turned into listings any more than low CMAs have turned into listings with home sellers.

Good article.

Joshua, this is a well written article and you have made some very valid points on distressed properties that just need to be sold to jump start the economy!

Joshua,

Great article..definitely presented some good points...thanks for the post.

Joshua - Interesting and well-written. Thanks for taking the time to give us the information! Hope your phone rings off the hook this week!

I read the article and it was incredibly irresponsible journalism. I commented the following:

This is an illogical premise. The columnist is co-mingling the role of a BPO in short sale with a BPO once the title reverts to the bank. Asset managers aren't involved in short sales.

What's hurting home values is a rotten economy, a nervous consumer base, and the draconian terms lenders now have for lending. Oh, and clueless newpaper writers who know so little about their subject matter that they publsh rubbish like this.

I am 13 year real estate broker. Asset managers, like any home seller, would probably be inclined to go with a higher BPO value than a low one. Loss mitigators, the bank staff who approve short sales, will often deny a short sale because the BPO comes in too high.

A final thought- If prices were artificially low, as the columnist suggests, then the absurd imbalance of high inventory for sale and dearth of sales would disappear. The fact is that prices have not corrected enough to get the buying public buying again. That is the reality on the ground out here.

Lynn - Thanks for your comments. I don't envy appraisers either as they've always been in a no-win situation. Come in too high and everyone gets upset, come in too low and kill deals. I've always wondered though, why are Realtors taught that a home will sell for what the market will bear and appraisers are taught something different?

Yes, great points Joshua. Interesting times right now and more to come.

Joshua. I'm not sure there is a dispute between what the market will bear and the appraiser's valuation.

If a buyer has cash and doesn't need a bank loan, they can pay what they wish. No need for an appraisal.

However, if a property needs to be financed, the appraiser's job is to evaluate the value for the bank and verify that the contract price will not put the bank in jeopardy if the buyer defaults. Clearly high down payment loans are less risky for the bank. However, if a property is financed with 10% down and market value trends show a potential 10% loss of market value in the next year, there could be a problem. Appraisers are looking out for the bank, not the buyer or seller.

Of course property can sell for "what the market will bear", until the buyer wants the bank to lend them 80/90/95/97.5% of the contract price.

Financing changes everything.

Joshua -

I still feel it is incredible and fiscally irresponsible for lenders to too easily dismiss buyers offers on short sale properties, on the basis of a BPO or two alone.

The buyer has already been patient waiting for an oft-delayed reply, and the likelihood of finding another buyer later at a higher price is a laughable proposition.

I really wish the banks would begin to "get it!"

DEAN & DEAN'S TEAM CHICAGO

Lynn - Where have you been? There's always a dispute in local markets over evaluations. The problem was less pronounced, or at least hidden in the past as the number of closed deals greatly outweighed the ones lost to an inaccurate appraisal. However, now, for every closing there is at least one deal that falls through due to an inaccurate appraiser.

To your point locally, in Atlanta, the problem was coming in too high DUE to financing. Out in the suburbs though, is now homes that are not comparable are forced into a comparable role, due to lack of sales. I'm glad it's not my judgement call to figure out if a home is a comparable left with only a choice of an extremely old neighborhood comparable or a recent out of area comparable with similar features.

This article was not about appraisers however, and nor should it be about the inaccuracies of job that is not impossible, but ridiculously tough. True market value would obviously take into account the "leanings" of the market. Meaning that evaluations today are going to be less than the ones yesterday... those are the factors that appraisers are not taking into account.

Thanks again for the post.

I also read the newspaper article with disbelief.

I have a potential short sale listing and the lender is Fifth Third Bank.

Initially, Fifth Third Bank agreed to the short sale as long as they netted $69,500 based upon their BPO and possibly an appraisal. The bank will not say if they had an appraisal or not.

The BPO was too high based upon recent sales in the same condo community. This condo community sits in a former blighted area. Although it is no longer considered a blighted area an association has been formed to help build-up the surrounding area to keep it from sinking back to where it came from.

The condo was listed for about 90 days without any offers. During this period a REO listing didn't sell so the bank canceled their listing agreement and took the condo to auction. The condo sold at auction for $28,000.

At the end of the first 90-day period Fifth Third Bank requested the owner to re-submit new financials, new income vs. expense information, a copy of the current listing agreement, etc.

Fifth Third ordered a new BPO.

The owner received an email from Fifth Third Bank saying the new BPO price they would accept was $89,500!

What did you say?

The world economy is sinking.

The U.S. economy is sinking.

The U.S. real estate market median price is falling.

The Naples real estate market median price is falling.

But somehow this 886' square foot condo has appreciated some 28.7% in the past 90 days?

The Listing Agent called the BPO agent for an explanation.

The BPO agent said Fifth Third Bank's BPO instructions would not allow her to use the auction price of $28,000 as they need two low-ball priced sales in order to use them.

Therefore, she went over 3 miles away to two condo communities that have NEVER been in a blighted area and probably never will be.

One of the condos she used as a comp. was 1,250 square feet vs. the 886 square foot potential short sale condo.

The point is, the bank's instructions are outside the historical and traditional way of comparing properties to obtain the current market value.

I doubt a licensed appraiser would have submitted any comp's. that were not within the same former blighted area and would not have used a much larger property.

The owner kept reducing the List Price in order to generate showings and to get an offer.

The owner received an offer for $43,000 cash.

Remember, the owner's bank says the property is worth $89,500?

The owner hired a third party to talk to the bank about their faulty process and to get them to accept the $43,000 offer.

Fifth Third Bank would not budge.

They would not agree or disagree that going outside a former blighted area and using a much larger condo was not normal real estate business practice.

They said the owner is stuck with the $89,500 until the next 90-day period expires and the owner is required to re-submit financials, etc. and a another BPO will be ordered.

Arent' banks in existence to sever their communities?

As the U.S. housing crisis continues and millions of people are forced to foreclosure because of the greed on Wall Street and the total misunderstanding our Congress has about real people suffering through no fault of their own.

You would think the bank's Public Relations Departments would be doing some serious counceling that one of these days the economy will be back and these same millions who the banks have dumped on will have jobs and will have long memories as to how out-of-touch and insenitive their lender was to them.

So now the bank is forced to foreclose and assign this to an agent who couldn't be more removed from the active market if they tried. The agent gets the foreclosure on the market with one photo.

As an agent who lists REOs (IN MY AREA) I say WHAT? No REO properties in my area are listed by agents "removed from the active market" Frankly the REO agents ARE the active market in my area. Oh and we have multiple photos also. :)

Tammy - I might have too broad a brush in this case, since a lot of REO agents I know are great. However, we can all name the agents that are out of touch. I agree that you might "be the market" but I doubt if you have any sort of success that you are OUT in the market day to day. That's what I was getting at.

Good to know who the "GOOD" REO agents are! For sure!

Joshua - Great points made in this article ! One more short sale that goes through is one less foreclosure at a lower price. I agree !

If the market continues to decline, as it is doing currently, then yes, the property will be worth less 6 months from now than it is currently. I think that you should give the best and most accurate price when preparing a BPO and you should take into account the declining market. If you are doing BPO's in the same market area, especially if you have been doing them over a period of time, you should be able to see a trend as to the market price if it is declining.

I have done a lot of BPOs...tell it like it is. And no listings from them yet!

Very good points in your article + the follow up comments.

I rarely do a BPO. I am doing 2 today, however. Both are in declining coal towns, and the properties (and the ones around them) are disgusting. Poor condition, just terrible! On my notes I sent street scenes of the location/neighbors. And I am not LOWBALLING the suggested marketing price. I am giving a realistic value, which happens to be pretty low.

Great article. What I think it points out is how removed industry experts are from our market. High BPO values are the number one reason that short sales do not go through. I think it is insanity for a lender to pay an agent $50 and expect to get an accurate market value anyway. How much time can an agent spend for such a pittance?

None the less the lenders do it on a regular basis and we are forced to negotiate with lenders who have bad information about what their asset values are. This is the market we are in so seek the oppotunities and make the best of it.

Ken Crotts

Windermere Real Estate

www.kingcountyhomesolutions.com

Josh - GREAT POINT! We stress to all the agents that work with our team to be sure they are present for all BPOs. You have to be sure the BPO agent is giving the lender a true and accurate picture of the Fair Market Value. FMV is always the price a home will actually sell for when the short sale process has run its course. We see too many deals tank for agents because of an inaccurate BPO. BPOs that are too high hurt: 1) The lender: they let a good short sale offer die and end up with a property that cannot be sold anywhere near the BPO and sells many months later for less - they lose...lose....lose 2) The homeowner: the foreclosure may strike midnight before they can find a buyer to meet the banks idea of fmv, may lose any buyer they had. 3) The listing Agent: if they have listed the property below the BPO then they have just shot themselves in the marketing foot. 4) The buyer: the buyer that waited weeks into the process has lost time and opportunity to buy something else. -----Rant Rant Rant ----Accurate representations of the market for BPOs is crucial for short sale success.

Call me - we still want to work together!

Totally agree. The BPOs need to be low balled. I had a short sale that took 3 months to get through. It was a low price at the time now the market is caught up and there are 5 other homes just as good the buyer could go with.

J Phillips writes: "The columnist is co-mingling the role of a BPO in short sale with a BPO once the title reverts to the bank. Asset managers aren't involved in short sales." My thoughts exactly.

To your points: I believe we are bound ethically to do a BPO market evaluation that is accurate to the best of our ability? I find that the BPO vendors give us a hint each and every time. If it is meant to be for an REO property, they tell us to use REO comps and ask for a 30 day quick sale value. If it is for a short sale evaluation, they ask for a different market view, 30/60/90 days and to use fair market comps (if any exist in an REO driven market!). I do what is asked of me as I read between the lines.

I do agree with your argument for the most part, however. It is just hard to read that "BPOs need to be lowballed". Some people will take away the idea that a BPO should be "less than current REO market" knowing that each and every sale is dragging the market down a little further. In our market, the REO agents are pricing foreclosures to sell in 24 hours with multiple offers. Often the pricing is 25%+ lower than what they could get in a fast 30 day quick sale scenario (IMHO).

Sometimes I WANT to be a hero for the rest of the homeowners in our market, who are seeing their equity positions erode on a daily basis. Some of the underpricing is unnecessarily dragging down our investments. I don't like to see the entire market trending lower than is necessary just so a handful of agents make a quick buck...

Too harsh? ;)

To the BPO agent, the process is the same (foreclosure BPO vs Short Sale). In fact, it's often that the BPO agent might not even know what the current status of the home, until they begin their research, which might be too late. I've done BPOs and learned the hard way to seek out the listing status before hand.

At the end of the day, it SHOULDN'T matter whether it is a foreclosure BPO or a short sale. It should be the Broker's Opinion of Value.

Lisa: You can be a hero if you want, but when the home doesn't sell and is forced to lower the price again, possibly below your original assessment, don't be upset that it causes more damage.

Not too harsh! My personal blog is called Brutal Honesty for a reason!

I find more and more in the last 6 months banks are getting multiple BPO's. (Since they are only paying us a few pennies to do them why not?) We have a few agents that high-ball them in our area thinking if the short sale doesn't go through they will pick them up as foreclosures. Those selfish agents are hurting the buyer, seller, bank and legthing our economic recovery in my opinion. Do the right thing folks, price them within the market taking into account declining values.

Its hard to believe a newspaper could put out an article about real estate that is completely inaccurate (sarcasm). Some of these banks are just not faceing reality. They want to get away with the shoddy lending practices that got them in this mess in the first place. They want to the consumer to pay the price, but not the banks themselves.

Interesting point of view, thanks for the post

Well, Joshua, all heroics are premised on the fact that I am providing an accurate BPO, one with calculations and everything! ;)

I will say, however, that for some REO's on which the bank actually used my 30/60/90 day pricing suggestion, the homes are lanquishing at the 90 day price point as the market values continue to trend lower and lower. There is a fine line between giving the home away and getting it to sell quickly in an every declining REO driven market. The BPO instructions did not call for quick sale/distressed pricing, but for fair market value over a normal time period. To me, there is a difference...no?

For the most part, I believe we are all trying our best to navigate some pretty murky waters regarding valuation. I can justify all my calculations using whatever comps I was asked to use. That doesn't mean the home is going to sell in spite of MY best effort unless the home is bargain priced right along the homes being given away for a 30 day turn around...

I do BPO's on occasion. They don't pay well and I don't do them unless it's convenient for me. But I do try to do an honest job. But time and time again the BPO company turns them back. They end up telling me what they want the price to come in at - What? I've done a few as many as 3 or 4 times because the BPO company will do anything but fill in the report themselves. People, it's called Ethics!

Working on a short sale right now that I'm glad the BPO came in low ....

Tammy Lanford - Oh and we have multiple photos also. :) Would you pllleeaassee write a post about the lack of photos on an REO property? I never have understood this.

I am a listing agent and work regular listings, pre-foreclosures, short sales and I'm an REO broker. I totally agree with you. We recently had a listing where a short sale was needed. We had a good offer. When I say good offer, it was really for as much as the house was possibly worth. Never could work it out with the mortgage company. Now we have it as a REO, and it is going to sale for less than the offer we had months ago.

BPOs should reflect what is reasonable, not the maximum remotely possible.

Good post. It gave the some things think about. I suppose the ideal situation would be the local agent does the BPO for the local lender and the same agent would list it. I do BPO's all the time but it seems most local REO properties are listed by out of town agents. And yeah, what is up with that one photo?

I get requests for BPOs regularly and I do think there is a difference between a BPO for a short sale or real estate owned by a bank and say a third party relocation case. I don't purposefully low ball an opinion price but usually my number is the lowest. And I do deduct for a foreclosure or short sale - a stigma exists on those and though it is hard to quantify it's there.

Occasionally I get a listing - like about 1 in 10 and even then I think my BPO was just a part of the reason I got it. If it's a house I want to sell I'll let them know and ask for the listing, maybe contact them a few days after I submit my analysis. Sometimes they have a listing agent before I even get a call for a BPO.

In New Mexico brokers can't charge for a BPO unless they are a licensed appraiser. So I don't. I'll fill out their forms at no charge and bill separately at an hourly rate for real estate consulting services.

Kent Davis

When I hear the phrase "low ball", it's usually a bit less than a 10% discount. Regarless, you make a valid point in distinguishing between an appraisal and a BPO (in that the BPO takes into consideration market conditions).

Great article. Thanks for posting and I couldn't agree with you more.

I have done over 200 Bpo's just this year alone, and I do get listings from them, and I do my evaluations on the CURRENT market conditions, which here in Port St Lucie continues to decline...I know that the bank needs a certain number, but I will not allow the Asset Managers to call me and tell me to use this or that MLS listing to get the price they want, yes this has been asked of me. I had one call me at home at 10pm and tell me that he needed to change the numbers on the BPO and just needed my ok, I said no. The program I use gives a low, medium, and high range for the BPO and I know when to use the low ball range. There are many instances when I need to use the low ball offer. I just don't think that we as agents should be forced into giving the bank the number it wants, if in fact it is not worth that amount (low offer) I will not comply, I actually wont do BPO's for the company any more, it is my license on the line and its not worth it for a $75 BPO. Great post by the way! Thanks for bringing it to the forefront!

Some great points. I try to get the number as close as possible for the bank. They usually let you know if they are looking for a "REO" value, or a "short sale" value, and I base my numbers accordingly/

As an agent that handles short sales I am living your article. Superhero BPO agents out to save the values of the local market are killing good deals everyday. I can document numerous cases where the process has gone on for 12+ months and the lenders have lost 25%+ in equity trying to hit a BPO that was unrealistic. Through painstaking negotiations I have been able to put off the trustee sales, but if the lenders don't wake up the properties will beome REO's and sell for much less.

Media that allows that kind of stupidity is just as irresponsible has the journalist that wrote it.

Readership in newspapers in declining. I wonder what could be leading to that?

Loss mitigation knows the fair market value and appraised value difference. Quite often listing agents fail to price this home 75 to 90 days out. The best realtors price between 97 and 103 percent of selling price at sale. Know your market....know your prices like the back of your hand to be the best at your craft!

I particularly like your last line: SO in fact a "low ball" BPO might actually be reality, if you take into account HOW LONG the bank takes! In this market the banks are taking so long that prices can have dropped since the offer was made.

Thanks for taking a serious subject, adding a bit of humor and venting! What a mess we're in! No worries ... somehow, we will get out of this.

As a former real estate broker who handled REO's for Fannie Mae, Money Store (remember them) and others, I can say that they NEVER came in at the price on my BPO's. Perhaps they had other agents doing the same thing and coming in high in hopes of becoming their agent, but Fannie Mae in particular consistently came in $10,000 above my suggested list.

I remember one property in particular because it was trashed so severely. I said $79,000 - they listed at $89,000 and turned down 2 or 3 offers in the 70's - a year later it sold for $65,000.

Things may have changed since I left the business, but at that time Fannie Mae had one agent who covered a wide territory. I got in because the agent covering our area was tired of driving for over an hour to get to his listings here. He recommended me. When I left the business the listings once again went to an out-of-town agent.

So, you are accurate when you say that the REO's are often listed with agents who don't know the local market. Not always, but in some cases.

Along this vein, I just read that Fannie Mae says they lose 19% of the loan value when they sell on a short sale - and 41% after a house becomes a REO. Thus it is in the bank's best interests to move forward on any short sale within reason.

Supposedly Fannie is working on a pilot project to streamline short sales. I hope for the sake of all you active agents that they really do it!

Joshua,

Thank you for your comments. I agree with you completely

Sherry Ferfes

I don't know where that writer got his research from but he is wayyyyyyyy off-base!!

When doing a BPO just be as accurate as you can. However, when I tell the truth I ussually get a lot of questions about why mine was lower than the others. When given the others to compare I ussually come back with a very good answer.

Great post! I read that article, and I too found it to be ridiculous. I don't think there are many agents getting rich from doing BPO's.

Hi Joshua - I do wish that BPOs were as accurate as possible and reflecting the true state of the market. An agent I know has presented several short sale offers where the BPO was higher than her buyer's offer, the offer was rejected without counteroffer, and then the house stayed on the market and wound up being sold for less than her client's offer. This did no one any good.

Joshua, the whole idea of BPOs determining market value is just plain ridiculous! We all know that the true VALUE of any property is determined by what a QUALIFIED buyer is WILLING to pay at any point in time. It doesn't matter what the BPO says. If multiple buyers are offering to buy the house, then the price goes up as they bid against each other. Obviously, the value was higher than the asking price. If NO buyers offer to purchase the house, then obviously it was priced too high... I say "WAS" because in a short sale situation, by the time they realize it's too high... it's too late and the house goes to foreclosure. Then it drops another $50,000 in value...

Join my new AR group and post your blog at http://activerain.com/groups/virtualoffice

Regina P. Brown

Hi Joshua, here are my comments on Ken's article. I referenced your blog post.

Thanks
Lee

MAR

This post definitely gives all of us something to think about. I'm now seeing banks who are doing BPOs when borrowers go into default, which means we have no idea exactly when it was done, who did it or how much it was for.

As an "REO agent" the biggest bain of my existence IS BPO's!! The reason REO's are "lagging" the market is once I do MY Broker Price Opinion, the Lender also checks it with a formal appraisal and then for good measure a BPO. The nature of a BPO, as the agents have claimed above, is to endear you to the Asset Manager or Outsourcing company so you can then get all the REO Listings! The agent's get paid squat for their time and eventually just throw a number out to get the darn thing off their desk and collect their paltry sum.

I get a notice of an "appraisal review" and now the AM wishes to lower the price to a ridiculous number which then generates WAY TOO many offers! Which promptly jack up the price to a level which the AM deems suspicious but could very well be MARKET PRICE. For instance, I had one property which I comped out at $394,500. A very good price I felt. The AM approved the price but called me 4 days later stating we needed to reduce it as they had an "appraisal review" which turned out to be some low-ball BPO! They said we needed to immediately reduce it to $313,000!!! I said something about the agent or appraiser smoking crack that day! The AM insisted on reducing but I argued my case. He reiterated, "I have to reduce it. Pick a price!" I threw out $379,000. He said, "Done" and quickly sent me an amended listing agreement. We sold it with 7 offers for $389,900!!

The BPO process is so inherently flawed that it should be given absolutely squat for any type of valid pricing verification! Get ANOTHER appraisal!! In our market here in Sonoma County we are closing 50 Short-Sales a month out of 350+ sales. Under $300,000 our sales are up 625%!!! They are basically ALL REO's!! We have a 3 weeks supply of REO's! They make up 15% of all active listings but 60% of ALL Sales. The numbers say it all--Median Price for REO: $260,000,DOM 30 days. Short-Sale: $305,000, DOM 192 Days!!

Joshua,

I have done over 250 BPO's in the past few months in PHOENIX. I had to go back and review several because I was the 2nd agent or 3rd agent to submit one for the same property; and have found that same agents used comps that were not comps at all... Custom homes on a mountain side neighborhoos in the the same pot with tract homes at the base of the muntain .... sometimes a real mess. I had to be the one looking bad and redo or explain. I always stick to my guns. I think BPO's should be paid more and the agents selected to perform them should have a min of 5 years ( full time ) experience in sales. homes that sold over 1.5 mill were comp at 400 K. the market has not gone down that much .... some of these agents that do BPO's really have to wake up and do a better job.

Some were way too high agent clearly ignored the REO's when 70 % of sales are REO's and short sales....

I ALWAYS WRITE IN : MARKET DRIVEN BY REO'S AND SHORT SALES. SAME ZIP CODES OR SUBDIVISIONS THERE IS NOTHING ELSE THATCAN BE USED

and the 3rd party vendors need to pay more than $ 35 FOR outside BPO (WHEN SO MUCH IS RIDING ON THE VALUE SUBMITED.) What do they expect for $ 35 ?????? I do not do any BPO's for less than $ 50 to 65 ( outside ) or 80 to 100 ( interior ). AZ IS A NON DEFICIENCY STATE : MEANING THE LENDER CAN'T GO AFTER THE FORMER OWNER TO RECUERATE ANY MOEY AFTER THE SALE ( IN MOST CASES ) IT IS A VERY EXPENSIVE PROPOSITION TO FORECLOSE IN AZ. LOSS MIT DEPT NEED TO GET A BIG BANNER THAT SPELLS OUT : VERY EXPENSIVE TO FORECLOSE IN AZ !!! ACCEPT THE SHORT SALE OFFER AS IT IT THE BEST YOU WILL GET. THEN THEY NEED TO LET BUYERS KNOW THEY WILL RESPOND PROMPTLY AND MINIMIZE THE LOSS AND THE POSSIBILITY OF THE PROPERTY GETTING TRASHED OUT AFTER MOVE OUT .

My 2 cents.

I have done a couple of hundred BPO's, some for companies I get listings from and some I don't. They are all done with current listings and sales and with the highest integrity. None are done to make the bank happy or the listing agent. I have had agents call me with what the shortsale offer is that they have received and hope to guide me to support it. Some were so low it should have been a crime for them to want it to go through. Either way my BPO's still supported what the market in my area was at that time. The main word for all in the business or our media friends is that Integrity is the Key. Do the right thing and sleep well, that also goes for publish the right thing, not sensationalism and sleep well. Thanks for hearing my 25 cents worth.

Robby

HAD TO COME BACK AND WRITE MORE ON THE SUBJECT. HAVE HAD VALUATION COMPANIES TELL ME SEVERAL TIMES MY PRICE IS TOO HIGH !!!! VALUATION COMPANIES WANT THE BPO PRICES LOWER IN MOST INSTANCES. SO JUST AS IN THE PAST THE APPRAISERS WERE PERSUADED TO OVER INFLATE , AGENTS ARE NOW PRESSURED TO LOWER. !!! LOL I ALWAYS TRY TO DO MY BEST SO I CAN SLEEP AT NIGHT AND HAVE STOPPED DOING BPO'S FOR A FEW COMPANIES THAT WERE IN MY OPINION NOT VERY PROFESSIONAL.

THIS IS WHAT I WROTE SEVERAL MONTHS AGO ! Banks want even lower value BPO then they should be @

And... what is Ken Harney's explanation for when home prices got too high and lenders were rubber stamping approvals?

Nice post pointing out a journalist who has little clue.... Maybe he should spend some time reading the Wall Street Journal instead of the Washington Post.

I also suggest he take an ECON 101 course so maybe, just maybe he'll learn that Buyers determine market price... not a BPO or Appraisal. Or maybe he should ask some Real Estate agents in the trenches who have watched REO home prices drop after sitting on the market because they were priced too high.

I can see it now... Washington D.C. blaming the decline in home values due to BPO's and taking over the real estate industry... LOL!

Barney Frank is going to take over and we are going to have a "Real Estate Czar"...

"This is something that appraisers are NOT trained to do."

You are way off-base here, Joshua. But what is totally unknowable to me is whether the appraisers in your market are just complete idiots, or if you simply have no clue what your talking about. It's a coin toss... I'm leaning 40/60... but don't know.

I hate to be brash -- though my humility runs awfully thin in these situations anyway -- but it's been awhile since I've seen someone ridicule a entire profession that they apparently (clearly in this case - though again...40/60) know nothing about, without at least considering how their own industry feeds their delusion and skewed sense of rectitude.

I especially value this keen observation of yours that proves demonstatively that you are of grey beard:

"True market value would obviously take into account the "leanings" of the market."

You don't say? Hmmm. Is that why appraisers have been using listings/pendings in appraisals ever since the MLS became rule of thumb in the ‘90s? Is that what we've been doing all this time... capturing those market "intangibles" so visible to only you Realtors, such as leaning?

One could erroneously conclude from reading your post and comments that when appraisers develop absorption rates; analyze DOM trends and ask/bid ratios, etc.; which ultimately lead to discount factors known to you as "adjustments," that we're merely doing it for spits and giggles.

How wrong you are, Joshua, and misleading to boot. Appraisers are in fact trained to identify for agent/seller greed and ineptitude as well as the bias of markets.

So let's cut to the chase here.

By all accounts banks and holders of mortgage assets are fighting tooth-n-nail to keep from properly valuing these assets. Why? Because market prices (booked through completed SS's and/or REO sales) would blow even bigger holes in their balance sheets forcing them to increase loss reserves if they had not written down the value of their holdings enough (which most, anecdotally, have not). If banks, hedge funds, or others thought for a second they would benefit from "analytic drag" on the part of appraisers, BPOs wouldn't be their tool of choice regardless of cost.

You see, with BPOs they get a twofer -- cheap AND inflated. At least that's what agents who are busy bringing buyers to the table tell me.

Oh... by the way.. 6 months ago We had a full price offer come in on one of our short sales listed for $250,000... the loser lenders APPRAISAL came in at $255,000 and they would not budge and accept the $250K price... neither would the buyer and backed out.

Today the home is listed for $210,000.... 6 months later and values in the neighborhood are still declining.

Lenn,

Couldn't agree with you more.

BPO's and Appraisals are similar to the extent that they are used by lender's for current market value and losses, or the potential there of. However the one very valuable bible that realtors don't have is the appraiser's M&S. Most realtors, not all, as a rule also don't know the finer points of what underwriters/lenders are looking for regarding current value.

This is where an ETHICAL APPRAISER comes into play. As we say "It Is What It Is".

Regina,

Yes, we're all taught that a willing buyer and willing selling drive the current market. However, when you through into the mix a 3rd. party seller, that changes the ball game.

Just my thoughts.

The whole idea of banks dictating BPOs and appraisals is bizzare to me. A house is worth whatever it is worth regardless of what banks want it to be worth.

I did my one and only BPO in 2005. The bank wanted me to revise my estimate upwards. I refused. I never got paid. Oh, well!

Joshua. Great pointers. I have hit my head against the wall a number of times, trying to get

buyers reasonable bids accepted by the lenders. 3 times I had to give up after putting up a good fight duti=ring 6 months. Every time a couple of months later the bank sold at a price that was 30-40% lower than whatt we had offered. What a waste of money, time and effort. If the lenders can't get this straight, I am afraid the economy will keep spiralling down wards. Thanks again Joshua.

Peter W. Just, Keller Williams Palm Beach

All the BPO's I've seen are too high. The bank ends up selling later for much lower than the BPO...

This was very informative, the Short Sale market just started here in New York City, and the BPO process is something that we are beginning.

Some good conversation and information with some strong opinions. I enjoyed the read.

Hmm, we do a ton of bpos and have yet to receive a listing from one of them. Listing a bpo shouldn't even be in the discussion when considering doing bpos.

When I used to do BPOs, I had to call the listing agents for access into short sales. The smart agents provided comps for me. It's true I verified that the comps were appropriate, but it was an excellent move on the listor's part. I was definitely conservative, and wouldn't consider it 'low balling'.

There are so many possibilities of why a Realtor is doing that bpo.

1. refinancing

2. short sale

3. market value for the buyer getting financing

4. reo foreclosure sale

5. simply a quick sale

Almost every bpo asks for several prices...quick sale 90-120 days 120 days and up, reo value..It is then up to the bank to decide how to proceed.

I do bpo's constantly and when I get my REO listings I personally feel that I am not "removed from the market" but rather right on top of the market!! In my area REO's "are" the market!

Today I am working with a buyer and I "know personally" every house that we need to look at because of those bpos and listings that I do daily.

I would venture to say that an REO agent, at this time in the Real Estate Market, is probably more on target than anyone because we are really researching the comps both active and sold.

People that write articles about other peoples professions cannot possibly know what is actually going on. That's like me writing about Contractors...let's see, I think maybe "they" are driving the house prices down because they are all trying to get business since new house sales are down!

Excellent points and good comments. I just picked up yet another short sale listing yesterday and I know what I'm up against already with not one but two lenders and a property that is upside down.

I started out in this business as an investor doing short sales for myself. Now I do short sales and REO as a Realtor.

In ever case, without exception, if the bank did not accept my short sale offer - it sold for less as an REO.

When you add in costs to foreclose, holding costs, and added commission, the losses are even higher.

Good points and I couldn't agree more. I negotiated short sales for years as an investor trying to buy it outright before becoming a Realtor and specializing in this field. In most cases I am not running into a hige problem with the BPO's coming in too high so I think the agents in Jacksonville who do most of these are are on the mark. If I do have a BPO come in high it just takes a lot of work (and time) to get them to order another (not all banks will do this) costing everyone more money and very frustrating!

This is all so very interesting. A lot of good points and knowledge to learn.

Thank you for helping to shed some light to those who depend on us that provide the BPO's. My team does over 1000 BPO's a year. We are very fair when we complete our BPO's and we do our best to make sure that the values we come in with are indicative of the value for the area, and what is selling in the area. Many times our BPO companies will give us specific guidelines as to what thy want us to do. Some will say they want the expected sales price and the low end value to match and the high end value to be the listing price. Thee are many of that specific systems we use to obtain the correct pricing and values for the properties out there.

Unfortunately, I do not agree with most of your article. I am a CDPE-Certified Distressed Property Expert and the #1 Reason that a Short Sales does not succeed or takes too long is because of the Realtor's. I have gotten what appears to be the most difficult of Short Sales done and done quickly. DId you know that Countrywide receives 12,000 Short Sale Packages a week, and approximately 99.5 of the packages are incomplete or do not have the Agent's Information. If they receive a incomplete package or do not know who to contact since they are so overwhelmed they shredd the Short Sale Package. They do not have the manpower to do our jobs too. I have since many families go into Foreclosure because of Real Estate Agent claiming they know how to do a Short Sale. When an Agent fails their Seller, the Seller's empirica drops 250-300 points for up to 10 years versus a 50-80 point drop with a Paid As Agreed Short Sale. My suggestion and please do not take this the wrong way, but if you are an Agent claiming to do Short Sales understand the responsibility you are undertaking...IF you do not really know what you are doing, then got out of this niche. You are hurting families more than helping. Too many Bad Agents are going to take these people out of the Home Buying Market for 10 or more years, instead of helping them get into a new affordable Home in 2-3 years. Besides maybe costing them a new job, since most employers will not hire people with foreclosures on their Credit. If you really understand the damage you are doing to these people's lives then you should play around in this market-

My contention is that asset managers and banks will submit BPO orders and give so many REO listings to agents who are FAR REMOVED from our specialty maket that it does end up hurting our prices. We'll have a BPO done by someone from down the hill, as far as an hour away, and they don't have access to two of our three MLS systems. They don't have all of the comps. Every day it seems that there are new REO listngs by different agents from down the hill and out of our area. They send an assistant to come up and shoot only one photo, and put on a lockbox. 9 times out of 10 there's no combo code put into the MLS and I usually can't show the property because I then cannot get ahold of the REO agent, nor their 10 assistants...much less any type of communication about an offer, whether or not they even received it. How does this help our community and the bank? Do banks understand that they're giving listings to agents who don't serve our local community?

I think that we need to look at things from the banks perspective. Or more accurately, from the person at the bank processing the short sale offer .

This person knows nothing about the local market other than what they are told. The BPO is a quick and inexpensive way for them to get information on what a home is worth from an "independent" source. They can then make a financial decision on this info. If you think about it, this is quite responsible though somewhat flawed. If a property is worth 200,000 would you want the bank to let it go for the 100,000 that was offered!

However, BPO and appraisals are not always accurate at telling us what a homes value is, mainly because they are using sales from the past to arraive at a value.

The next time you make a short sale offer and the bank responds with a counteroffer that you feel is unreasonable try putting together a market analysis that shows justification for th elower price. This cannot be a long document, no one will read it. But it must give enough information to justify the bank making a decision to take a lower price than the BPO tells them it is worth. Perhaps it includes a graph showing price trends for the area. You will have to be creative and use some market metrics you are not use to using.

I did this on a recent short sale and got the bank to move a significant amount after a 2 week stalemate. Again, the person at the bank is not going to make an emotional decision just to sell a house. They need some concrete data that they can defend their decision with. Imagine you were them and your boss came around and asked you why you agreed to a short sale for 30,000 under the BPO. Wouldnt you want to be able to produce a ocument justifying the decision. (Yes I know, the decisions at banks often go before a group, but the reasoning holds) Give them justification to make the decision you want.

And do not expect the listing agent of a short sale to do this work, you , as the buyers agent may hav eto put this together and give it to the listing agent to send to the bank.

Carl

www.souheganomes.com

Hello Joshua,

I think agents who are doing BPO's should provide an accurate evaluation because the lenders rely on agents expertise and knowledge of the current market condition, remember you are hire to represent the lender best interest. When you provide an accurate BPO report to a lender, you are influence its revenue and provability to sell the asset promptly to prevent additional losses. It is our responsibly to provide the best BPO report by taking in consideration; if the property is located on an area where the market will continue to decline, location, present condition of the property, inventory, number of REO's for sale and notice of defaults, Etc. If your report is not accurate, eventually the lender will find out. I believe they rate their agents. About Short Sale, there is a lot of work involve with this type of transitions, if you are not ready to take what it takes to complete a short sale do not bother taking the listing. If do you take the listing make sure to send a complete short sale package to the right department and must follow up with the lender within 48 to 72 hours. Time zone could be important to take in consideration.

In response to BPO agents saying that their evalutions are accurate, I have been tracking on a spread sheet all our office short sales that don't get approved and 100 % of the time, the banks ALWAYS received LESS money from foreclosure and that's not including the final cost of foreclosing!!

FYI -- I believe they just passed a law in California trying to prevent agents from purposely inflating BPOs so that they would get a listing when the short sale/loan mod failed (due in part to their unrealistic valuation). I don't know where you are going with this blog post.

My complaint with BPOs is that the constraints they put on the comps used etc virtually dictate the end result. It's getting ridiculous with everyone trying to control what agents are doing. We just need to remain professional. I don't think deliberately low balling a BPO is being responsible and professional. We don't need to have the legislature babysitting our profession and this type of irresponsibility leads to that. IMO

From someone who completes 8-10 BPO's per week I don't try to low ball or over evaluate the subject at all. I just try to give a clear picture of the market based on the facts, the current active and sold comps and market snapshot tell the picture of what is really happening in this market. I am the lenders eyes and ears for my market and they trust that I will provide accurate info. Many times I do not know the purpse of my BPO...it could be refi, short sale, pre-foreclosure, foreclosure, sale of mortage, etc.

Loved your description of the "short-sale process", so true ( especially in regards to "more time passes" )!

It's always been my role to meet the agent who performs the BPO at the property to try to influence a low-ball valuation in order to make it a win-win for every party involved...even the party that is ultimately taking the loss, because as you noted, most times the home does foreclose and then nets the bank less than they would have received from the short sale offer.

Isn't it amazing that these institutions require us to reduce our commissions when we have to work 100 times harder to make a short sale happen. I think if I was to break down my hourly wage on the last successful short sale I did, I probably made 42 cent an hour!

APR

Today filing BPOs I did for bank owned properties in summer of 08 with notes when listing agent or loss mitigation rep from bank complained about my opinion being too low.

Checked the status on those who complained. All of them still on the market today, most at a higher list price than my BPO months ago. A lot happened since then, today each and every one is worth significantly less!

However third party relocation company BPOs (and I don't remember a relocation specialist whining about them being too low) have Closed or have Sales Pending on about 75% of the properties I did for them, mostly below my price opinion.

So the third party relocation companies are doing a better job of moving their inventory than the banks - I know this is not exactly apples to apples but it sure makes you think about the bank's motivation sell those houses in a timely manner.

Kent Davis

APR

What a fascinating chain of comments. I am a broker/owner of a firm in Southern California and consider myself primarily a listing agent. That said, I have done hundreds of BPOs just in the past year. I can tell you that I couldn't give a rip what the bank or particularly the listing agent thinks or wants the value to be. The value is what it is, and banks routinely ask for me by name because my BPOs need review nearly never. But I am quitting them cold turkey. More on that later.

One thing I have done in all my BPOs is to (in detail) explain why the house has been poorly marketed from the point of view of an agent looking at the MLS. If it looks like crap online, expect a crappier offer. If you're going to be handed an REOlisting, consider it a gift! Get out of your office yourself, drive to the property and maybe take a look at it! Maybe take a few photos! Show a little interest or energy you lazy REO agents! Not all, but most. Anyway, I have gotten a few listing agents fired, and they deserved it.

By the way, I have had VPs of important national banks call me to talk about my REOs and ask me to show them MLS entries for their other listings, based on me tipping them off that they're hiring idiots who have no clue. I happily comply. I have to fix this mess myself! One REO at a time.

I feel that in my city, most of the homes I review could have been sold for more. But desperate, arrogant listing agents list them too low, preferring instead to "get it sold" and feel it's more advantageous to get multiple low offers than a decent, more market realistic offer.

There were two listing agents who learned I was the BPOagent and called me screaming into my phone: one trying to scream his offer price at me, like I cared...and he was swearing at me as I hung up on him and I hadn't even done the BPO yet! Want his name? He's on my wall of shame.

Another gave my name and number to her seller, who freaked out that I was going to appraise his home to high, thereby getting his offer rejected for a short sale, and he called me relentless to "give him my BPO number." I called the agent and told her my next call as to the police for harassment or the board of Realtors to deal with her on a ethics issue.

But in the hundreds of BPOs I have done, I haven't really gained anything. I am paid top dollar, always paid and quickly. But it's unrewarding, rarely leads to an REO and the work is draining.

So I am quitting, cold turkey. Vendors are asking me to reconsider. I won't. There are only two firms I will consider to continue workingwith and haven't asked them to delete my account profile yet. Their forms are easy, they work is fantastic and it leads to REOs. The rest of the asset manager can find someone else.

DEC

Joshua,

Do you know the difference between a evaulation and a valuation? There is a difference!

"Appraiser" Wondering if you are poking fun at my "gramma" or making a statement. I guess the world will never know.

There's a difference between "A" and "AN" too, but we won't poke fun of you.

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