I primarily sell REO (Real Estate Owned by lenders, usually through the foreclosure process). A huge part of selling foreclosures lies in performing BPOs (Broker's Price Opinions), which are about halfway between a CMA and an appraisal.
If I value it, I will list it, right? Many agents who start doing BPOs think that every single one is getting ready to be foreclosed on, and they hope they will get the listing from the bank when it does. But the truth is, most BPOs are NOT for foreclosures or pre-foreclosures. Some of the non-foreclosure reasons a bank requests a BPO are as simple as they are getting ready to buy the note from another lender and need to ensure themselves the value is there, or the homeowner has requested a PMI drop and they need to see if there is 20% equity in the home, which requires a current valuation. I have even seen requests come from lenders after big storms, just to verify the condition of the home and whether any damage was sustained that needs to be repaired to preserve their investment. These BPOs are not going to turn into a listing within the next few months, but they are important to the lenders just the same.
To foreclose, or not to foreclose? That is the question! Pre-foreclosure BPOs are ordered when a borrower is in default on a loan, usually 2 or more months behind. These types of orders are extremely important because they may influence a lender to either try to work it out with the borrower, or to foreclose on them. If a BPO value comes in considerably lower than what is owed against the property, a lender is far more likely to try to keep that borrower in the home through loan modification, locking rates, or other means. They know they are not likely to make as much money by foreclosing and trying to resell it at current market value. But if the property has really appreciated and the bank is likely to come out ahead by taking it back and reselling, then the borrower probably won't be offered the same solutions to be able to keep the home. So if you are performing BPOs, you need to realize that the figures you provide to the bank may be a factor in this serious decision.
Buying the listing: Okay, I know many agents have not had the good fortune I did, to have a broker who is also an appraiser. Many were taught by their brokers or trainers to always bring in a CMA higher than you expect it to sell. The reason for this, in many cases with owner-occupant or investor-owned homes, is that the sellers are not truly knowledgable about real estate and will often list with whichever agent tells them they can sell the house for more. One agent told me to price a home 30-40% above what you think it will sell for, for "negotiating room." After all, you can always lower the price. Well, That may work with some sellers, though they aren't going to be happy for being misled. But it probably won't work with a bank. Asset managers aren't usually so gullible! They deal with too many properties to want to waste time, plus, it looks bad to their clients when the property ends up not selling close to the list price. Sure, there are vagaries in every market that cause even a properly-priced property to sit too long and need a reduced price, but overall, lenders need to know what price the property will sell for in a reasonable period of time.
What is reasonable? Properties in your market may average 180 days before selling, so to you, that is reasonable. However, banks have to pay every month the house sits unsold. If you had expenses for upkeep, management, taxes and HOA dues, etc, to keep paying for each property, don't you think you would want it sold more quickly than the area average? Of course you would! That is why most BPO forms ask for a value for 30 days on market, 90 days on market, and full area market time. They also need to know, realistically, what any needed repairs would cost and how much more they can sell the house for if repaired. They don't ask for you to guess what it will bring, they want you to actually derive an opinion based on comps, experience and factors unique to your local market. They need you to have a basic understanding of accurate valuations including adjustments, and repair costs in your area. They need you to have enough common-sense that, if you are providing an opinion on a bank-owned property, that you actually understand something about the sub-market and demands of dealing with repos.
In short, there is a LOT of responsibility in doing BPOs. Your BPO may make the difference between a family keeping their home or it going to the courthouse steps. It may make the difference between a bank losing $5,000 on a property, or losing $20,000. It may mean the borrowers get to drop their PMI and save some money every month. If you were in a situation where a value was needed on your home, wouldn't you want the agent to do a complete and accurate job in valuing it? So make sure you use the same care, diligence and responsibility in performing every BPO you do that you would want another agent to exercise when doing a BPO on your property.
And if you don't see the need in doing a thorough BPO, in taking time and care to get it right, and in taking seriously the reponsibility the client has placed on you to value a property properly, do yourself, your client, and the economy a favor and don't try to do BPOs!
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Wow great blog I dont think a lot of realize why bpo's are being done and you really drive home the point with your closing statement.