My last blog post, 500 BPO's and I'm Still Learning,  was actually meant for the REO GROUP on LinkedIn that I administer - unfortunatley LinkedIn only allowes 2000 characters per 'Discussion' post, so I posted the entire article here on my ActiveRain Blog.

(if you would like to join the REO GROUP at the LinkedIn Social Networking site, just visit the link and send me a request, throough the LinkedIn system.  It would be nice if you let me know how you found the group.)

I received a rather lengthy reply from a out-of-state investor that I have worked with in the past - he is actually a forerunner in the world of Short Sales and much of what I originally learned on the topic came from him.

His comment was so to the point that I wanted to post it here along with my responce.  So if you have any interest in BPO's and their overall importance in the market today, please take a few minutes to digest the following:

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John,

Great to see you posting. How are you my friend?

I smile every time I think of BPO's, especially in the current industry. I always knew that Realtors would give a high BPO price (value), hoping the bank would give them the listing if the property was taken back by the bank.

My question to you, is:

Since you've done over 500 of them, are the banks giving you all those listings?

If a Realtor doesn't wind-up with the listing, I've never come to understand why they keep giving BPO values which are too high and unrealistic.

I am not a Realtor, but if I was, I would choose to see the other side of the paradigm and watch the new results of my life based on a real-life working model. Here is what I mean:

1. I know the bank wants a BPO and not an appraisial, probably because they are looking at a Short Sale and need the value of the property.

2. If I chose to give a realistic value (in a declining market - which most of us are in) rather than an inflated value (basing it on inaccurate comps from history which cannot be used in a declining market - as properties are worth less each month), what will happen?

a. The short sale might get approved and the property sold, meaning there are 2 other realtors, a Seller, a Buyer and a Title Company who all now have a closing to do because I gave an honest lower BPO value which is more truthful in a declining market.

b. I've helped my industry because more deals closed, rather than the banks saying 'no' to the short sale because my BPO value was too high; thereby killing a transaction for all those people.

c. Somewhere out there, I have a Buyer, Seller, 2 other Realtors and a Title Company that are very happy with me that I gave a realistic BPO value.

d. Now those other Realtors will be encouraged to do the same in return on all the BPO's they do, so we, as an economy can still do Real Estate Transactions in a declining market, because the Realtors have learned this is the correct concept to follow in a declining market.

O how I wish in this Country, that Realtors would learn how to provide a realistic BPO value in a declining market, rather than providing a price on solds that closed when prices were higher and hoping the market will bottom out or go up.

When the market is hot, do the high BPO's, when we are in a declining market, provide declining market values, so the rest of the world can get their deals closed.

I know you are doing your part.

Best Regards,

Mark K.

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Mark,

 As glad as you are to see me posting, I'm glad to see you reading.  Thank you very much for a very insightful response - but as you'll see I actually agree with you.

Let me start by saying I've been doing OK - my wife, who you may recall has been on Home Hospice since last Spring, is still hanging in there.  Her cancer is very slow and painful.  I'm convinced that it won't ultimately be the cancer that takes her to be home with the Lord, but some complication - like the bout with pneumonia we are just finishing up with.  I hope this find you and your family well.

I guess my attitude with BPO's is different than most REALTORS because I had early training on Short Sales from the folks who really got it - like you.  I know I got burned out on them, even though I am considering getting back into that groove to supplement my REO business - just to keep the phone ringing for my buyers agents.  Are you still negotiating them?  Because, if I take on a SS Listing - it will be negotiated by a 3^rd party - I've looked at a couple, but we'll see.

 Let's talk BPO's.

The quick answer is no, I have not been blessed with all of the listings that I have done BPO's on.  Most of my BPO's (300+) are all with Clear Capital - an outfit that ONLY does BPO's with no opportunity of doing the listing unless contacted directly by the lender - and that has not happened yet.  I stay with them for two reasons: 1) They were the first company I did BPO's for and I learned a lot with them talking through the different nuances of different types of properties and what they expect; and 2) They keep my head in the market better than any other vehicle possibly could.  Today it is uncanny how I can receive two assignments on home that previously sold for, say, $350,000 - but from two different newer neighborhoods and I can with accuracy predict the value before I ever look at any more than the Title Report - and predict which one will be a $145,000 BPO Value and which will be a $175,000 value.

So, I don't do BPO's for the money - it would be an insult to think that the average 2 hours I spend on each report could be reduced to $20 or $25 an hour.  And, as I said, I don't do it for the listing opportunity on the majority of the reports I accept.  Rather my objective is to stay in front of my peers by commanding local market knowledge that cannot be bought or learned any other way than generating 10 BPO's a week (It's what I average these days.)

I wish I had taken the time to track the values I assign to see how close they actually come to the list price and the ultimate sale price - of course factoring in DOM as well.  Unfortunately there are no such statistics available and it would take a solid week to have a girl go through my reports; put them in a spread sheet and than gather the data from the MLS.  Is it worth it?  I don't think so, it would only feed my ego and no other purpose.  However, I can report on those that I have done the reports on where I have received the listings 25-50 I am on the money.  My average DOM is well under 30 - with many of my properties being pre-sold prior to actually going on the market.

Let's address each of your points above:

1) Yes the Banks, Wall Street and PMI companies all utilize the BPO process because it is less expensive and quicker than an appraisal.  3 BPO's is even less expensive than an appraisal and those who order prefer to save money while having more data to contemplate and consider when deciding on the next phase of the property - whether it be a portfolio acquisition, a short sale answer or pricing for an REO.

2)  I agree that a realistic value is the best value, taking into consideration all of the nuances of the property and the current market, including calculating the actual decline in value over the past 6 months.  It is not enough to take some published statistic and say everything across the board has lost 3% per month.  I have neighborhoods that have lost over 5% per month and I have some that are doing a very gradual decline of barely 1% per month and many numbers in between.  Again, it comes down to LOCAL market knowledge that only a true LOCAL REALTOR can provide. (One of my pet peeves has always been out of town agents representing themselves as experts in my market - it is even more punctuated now that we have mega REO agents covering a hundred or more square miles and not understanding MY MARKET.)

a) You are right because now I do have my name "out there" 500 plus times generating valuable data that has helped sell 500 plus homes.  When I do Short Sale BPO's (my least favorite) I have had agents remember me from a BPO I did 3 or 4 months earlier on, and thank me for the accuracy of my report and how it helped a family move with dignity.  What surprises me is how few listing agents will actually show up for a BPO.

b) Not only do I feel privileged to help my industry and local economy by helping properties close escrow I feel as if I am a warrior against the meltdown of our economy and doing everything I can to speed its recovery.  The fact is selling houses is good for the economy rather than letting them sit in ghost town communities - which is what we would have if the banks were pricing the homes to recoup their loses.

c) Yes, as I mentioned above - my name is out there with a positive light shinning on it.  The most important title not mentioned in your list of pleased individuals (buyer, seller, 2 agents and Title Company) is the Asset Manager who is acting on behalf of the Seller.  This is who butters my bread and I do everything I can to make and keep happy.

d)  Not sure if other REALTORS will be ‘encouraged' to do the same thing, but they will have to, because the comps will now provide more accurate information. 

I think it is a fallacy that unfortunately many believe about agents, the BPO and the ultimate listing.  The common school of thought is that if a REALTOR gets the BPO and prices it high to impress the Client that they will ‘get the listing' and then in 30 days go back in for a price reduction.

I think this is a very dangerous path to take for an agent.  Let's assume an agent is given an assignment 60 days prior to auction for a drive by BPO.  For discussion, let's say everything about the BPO is well presented - comments, etc.  The agent represents a high As-Repaired value of $200,000 and a As-Is value of $190,000 - based on a 90-120 price.  60 Days later the property is taken back by the lender and asks the same agent to do a 2^nd BPO on the property to establish a list price and now the agent comes back and says the property is worth $150,000 As-Is, due to interior damage; or whatever else is now detected to be at fault.  The kicker is the agent now predicts the As-Repaired value of $170,000.  Allowing for a 3% decline in value over the last 60 days, the As-Repaired Value should definitely be in the $188,000 range.

Had the seller relied on the original BPO to negotiate and ultimately turn down a short sale offer of $170,000 range they are going to be pretty upset with the agent - who will probably not get that listing or any more of that sellers business?

I do agree that an agent who is going to survive in the world of BPO's must be realistic in their approach at establishing value.  With every BPO I do, I determine the actual rate of depreciation (it will work for appreciation as well - if and when that ever happens). It is very simple - I look at the sold comps in a neighborhood 6 months age.  I add up the sales price of each property as well as the square footage of each home sold; when the division is done, I will know the AVG $ per sq ft in that neighborhood.  I then repeat the same exercise for the last 30 days and do the math to compare the two values - providing me with an accurate change in the market - based on a percentage that I have documented and not based on speculation.  It is nothing more difficult than that.

Thanks for getting ‘my juices' revved up this morning, over my first cup of coffee.  Obviously, I have passion for what I do, and if I can help someone else do a better job and join me as a fellow warrior defending our country against the meltdown of our economy.

Best regards,

John