Pricing of REO properties is critical if the bank is seriously trying to get it sold in 30 days. This statement may seem obvious to those of us in the business but it's not as easy as one might think. When a Lender assigns a property, one of the first tasks to perform is a Broker Price Opinion or BPO. This requires pulling comps in the area of both listed and sold properties and coming up with an opinion of value. This is a full BPO with interior and exterior photos. The agents need to take into account any repairs the property may need and come up with an "as is" price and an "after repairs" price. The lender also sends out an independent appraiser to evaluate the subject property. If the agent's BPO value and the appraiser's value show too large of a discrepancy the lender will hire another local agent to perform another BPO as a "second opinion". The lender will make the final decision as to what the listing price will be. We as agents have a great deal of influence as to the outcome of this price point, but the appraisal seems to hold equal weight. I've been told by an asset manager that if the appraisal is higher than the BPO, but not too different, they will sometimes split the difference, which might overprice the property. Overpricing problems seem to occur because of a difference between agents and appraisers of how the opinion of value is arrived at. Agents know the market. We look at the history of a property, how many days was it on the market before it sold, what is the mindset of the buyers in the local area, and what financing options are available. It seems emotion plays into it. Appraisers measure the exterior of the building, and count the number of rooms,(actually there's a lot more to it), but it seems more mechanical. Now I'm not blaming appraisers for the difference of opinion. Quite the contrary. For years we as agents have been pounding appraisers to come up with a higher number to satisfy lenders, especially in a rising market. I think appraisers have been conditioned to produce a "lending based" opinion of value. There are other types of opinions depending on the purpose of the appraisal. What about an appraisal for taxation value, for a divorce settlement, for a business opportunity that includes real property. How about a "REO based" appraisal in a down market, taking all factors into account, including the fact that the subject property may not be listed for two months after the appraisal is completed. I know appraisers aren't supposed to try and predict market trends, or assign a future value to a property, but I think if agents and appraisers were able to communicate we might see more aggressive pricing, quicker sales, and eventually a faster return to a "normal" market.
Rudy Detgen
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