Great discussion on this blog about the differences (and expectations) between BPOs and Appraisals.
Someone questioned on this article "who regulates appraisers?"
I DO, as do other appraisers and our state licensing board. When have you ever heard of a Broker or agent losing their license over a faulty, over inflated, or poorly documented BPO?
But there are appraisers who have lost their licenses due to poorly supported, documented and faulty appraisals. We DO have an industry which can be regulated, provided parties are paying attention and are willing to act.
Anyone who has access to the appraisal can have that appraisal reviewed and if found to be seriously flawed, can make a complaint to the state licensing board. I have watched recent Florida board minutes where numerous licences were REVOKED.
When does that happen with BPOs?
This is why appraisals SHOULD be treated with higher regard, better due dilegence, and given greater weight in lending transactions.
Today I want to address a question that I have long wondered about and have no good answer for, and that is why are BPOs ordered by lenders for short sales instead of appraisals?
Let’s think about this, and look at a few examples. When an investor, such as Fannie Mae, "invests" in a mortgage loan, they won’t accept a loan without an appraisal. Similarly, before a lender approves a loan, they don’t order a BPO, they order an appraisal. The most puzzling and irrational example is when the buyer and seller have the same lender...which is common with the larger lenders. I have seen the same lender, in the same transaction, order a BPO on the seller’s side, and then turn around and order an appraisal on the buyer’s side. Of course the BPO is always inflated, and somehow the same property has suddenly lost $50,000 in value in the weeks it took for that lender to approve the short sale. Why do BPOs even exist as the deciding factor on a short sale transaction?? Why can’t appraisals be ordered by all sides? Some can argue because they save time and money, but do they really?
For argument’s sake let’s say it costs $100 to hire a BPO agent to do a BPO, and roughly $400 to hire an appraiser to do a proper appraisal. It costs $100 to hire someone who isn’t necessarily licensed (and definitely not regulated), to spend less than 5 minutes in a house, and to not take into account all the factors an appraiser would. I have heard BPO agents say that they do 500-600 BPOs a month. That’s impossible for ONE person to do! We have all heard that some of these BPO agents hire (unlicensed) people to drive around and take pictures of the outside of the property, and I have actually seen BPO agents recruiting these drive-by photographers on Craigslist.
Now let’s juxtapose the BPO agent against the appraiser. An appraiser is a qualified professional who goes through serious training, and then is supervised for two years before being able to work on their own. Plus the appraiser’s sole objective is to appraise the property; they don’t do it in hopes of getting REO listings from the banks. Appraisers are qualified to appraise, take the time to take all factors into consideration, and generally speaking, give fair market values. They are regulated and are subject to consequences if they don’t do their job right.
Don’t get me wrong, I know that there are bad appraisers and great BPO agents, but that’s not the norm. We are in a serious mess and its being exacerbated for what? Lenders think that they are saving time and $300 per property, but in reality, thousands of hours are wasted disputing BPO values and getting nowhere. It takes time to dispute a bad BPO value on a file, months to resolve the issue with the lender… months that the property sits on the lender’s books, the sellers and buyers are left in limbo, while values continue to drop.
Can’t we put an end to this insanity? Please! Lenders/Investors are losing thousands and thousands of dollars on short sales and foreclosures, yet they are worried over a $400 appraisal? Am I the only one who is confused about this lack of common sense?
Lender and Investors: PLEASE…JUST ORDER AN APPRAISAL AND HELP US HELP YOU!
Help lots of people and have a great day!
Patty Da Silva, CDPE©, RESS®, AHWD®, e-PRO®, GREEN, CFS, TRC, RSPS
Copyright © 2008 - 2011 By Patty Da Silva, CDPE©. All Rights Reserved.
Legal Stuff: This article (Contents) reflects the opinion of the author and it is not to be considered legal advice. The author is not an attorney or a CPA. If you are in need of legal or tax advice, it is recommended that you to contact a trusted professional advisor.