To BPO or not to BPO: In defense of the BPO's place in valuation, part 2

Once they actually start getting listings, most REO agents do not have time to do paid BPOs. That often leaves relatively inexperienced agents to do BPOs; and, of course, inexperience in any form presents danger. I do shudder each time one of my listings or pre-lists has to be scrutinized by a random BPO agent, because so many of them know little to nothing about the realities of the REO market. The prospect of a poorly done BPO also increases exponentially with the distance between the BPO agent's office and the subject property. (Then again, I could say exactly the same thing about many appraisers, who also tend to come from far away.)

The fact is that BPOs were the entry point  into the world of REO for nearly all REO agents in the marketplace. That is not to say that a BPO agent has a reasonable chance of getting a listing each time he/she does a BPO. It's very rare for a paid BPO to net a listing for the BPO agent. It is, however, how I got my first REO listing; and there are still agents trying to break into REO by cranking out the BPOs.

An experienced REO agent is, presumably, the best person to do a BPO for an REO. As an REO agent, I have had occasion to suspect a competing REO agent of over-valuing one of my pre-lists in an attempt to inflate my listing price. His goal was to get the listing after it did not sell on my clock.

BPOs are often used to evaluate short sales, and short sale specialist Karl Falk makes the case that a conflict of interest could arise when the BPO agent is also an REO agent who might hope to gain a listing if the short sale goes down. His blog entry, BPO Lies and Videotape, can be found HERE.

Both of the afore-mentioned conflicts of interest could be completely avoided by an industry-wide understanding that doing a solicited BPO automatically disqualifies an agent from subsequently listing the property.

Some states have bowed to pressure from appraisers to put a stop to the practice of real estate agents doing BPOs. Because I believe that the agent perspective is distinctly different from that of an appraiser, I believe that it is a mistake to make laws against agents doing BPOs. It seems more logical to me to regulate how far afield an agent or an appraiser can go.

Andrea Swiedler's blog entry with the provacative title: When does a BPO constitute jail time? indicates clearly to me that the intent of the law in her state of Connecticut is to prevent BPO's ENTIRELY by anyone other than the actual listing agent. I'm confused about why such a law is even made, though, if there is obviously no intent to enforce it. It is interesting to me that Andrea's blog asserts that the BPO process drives DOWN the local listing prices.

To say, on the one hand, that a real estate agent knows enough to write contracts, to advise buyers and sellers, and to market and sell real estate--but then to turn around and say that the same agent cannot be compensated for their unique perspective, a perspective that adds to the valuation process when done correctly, is completely illogical. If a third-party agent could not be paid to do a BPO, the system would lose that impartial perspective entirely.

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Thanks to Susan McCall who provided a link to an article by the Appraisal Institute that spells out the regulations for all 50 states. According to that article, the following is a summary of state requirements (info for each state is spelled out more specifically in the article):

Unlimited authority - There are no limitations on real estate brokers and sales persons performing price and/or valuation analyses, including appraisals in non-federally related transactions.

AK, IL, IN, IA, MT, NY, OK, SD, TX, VT, WI (11)

Broad authority - Real estate brokers and sales people may perform broker's price opinions, competitive market analysis, etc. as part of the listing process, and for other purposes. The broker or sales person may, or may not, be permitted to charge a fee for their services.

AR, AZ, CA, CO, FL, KS, LA, ME, MI, MN, MO, MS, NE, NH, NV, OH, SC, WA, VA (19)

Limited authority - A real estate broker or salesperson may only perform a broker's price opinion, competitive market analysis, etc. as part of the real estate listing process. In some cases, brokers and sales people are prohibited from charging a fee or receiving any form of compensation.

AL, CT, DE, GA, HI, ID, KY, MA, MD, NJ, NC, NM, ND, OR, PA, RI, TN, UT, WV, WY (20)

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Part 1 of this blog can be found HERE.