Before you get indignant... BPO better than appraisal?

[Terrel L. Shields]

realty times columnist Marylyn B. Schwartz CSP about REO appraisals

We would order a couple of appraisals, along with a Broker Price Opinion (BPO), on a property. The three values would come in, and nine out of ten of the times the appraisals would be higher than the BPO. The reason given was usually that the agents had their “pulse” on the market and felt the market shifts more accurately than did the appraisers. It’s all about being in the trenches and watching from a front-row seat. The agents were talking to the consumers while the appraisers were depending largely upon data.

I guess the question is what were they really selling for? On the other hand, I see a lot of appraisers who do not study the listings and guage how much property is being listed in a given time frame vs sold in that same time. Plotting one against the other gives a quicker feel for which direction your bias should be.

Terrel

 

[Blue1]

Brokers are biased toward lower values in my opinion.......It's been my experience that a broker would rather list a property a little low in order to get the most inquiries and sell it quickly. In some areas (Like San Francisco) this is done routinely in order to spark bidding wars. My grandfather's estate (little old house) was listed 20K below the market and on the first day the broker had 25 people look at it. It eventually sold over the 20K mark-down. Look, on a 300K property a 6% commission is 18K. On a 280K property a 6% commission is $16,800. Just a $1,200 difference. The wise broker will list at the lower price. If it sells at at that price the broker still makes good money, if there are multiple offers, then the chances are it could close for even higher than 300K.

 

[Bob Ipock]

Apples and oranges!

Any given BPO may be higher or lower than a competent appraisal. The BPO may be DEAD ON a good and resonable value. However, the VALUE is not all an appraiser must worry about. We have rules and regulations. There are no rules and regulations for BPO's.

I have seen BPO"s that used no sales, only listings. Ones that used sales 2 or 3 years old. "Comps" that were NOT "sales of properties most similar and proximate to the subject property" (Fannie Mae appraisers certification). Comps. that required adjustments far beyond our 10/15/25 % guidelines....with no explaination.

How can you compare an appraisal with a BPO when there are no common rules, regulations or procedures?

In addition there is often a big difference between a BPO done for a homeowner who may list...and a client who the agent does not have to "sell" some listing presentation.

When people SHOP for something...they most often want the lowest price. When a seller SHOPS for a real esate agent to LIST their home...the HIGHER agent will most often (most often by far) get the listing.

Apples and oranges.

 

[jtrotta]

In our area the opposite is true;

List it high or at the Sellers instigation of what they percieve the value should be 8O and after 30 days if there's no interest they can adjust it down from there; most feel if they get lucky & git an offer right away-they can move on to the next property.

sometimes life's a crapshoot, jes depends on how ya handle the crap :lol:

snowglobe notes :wink:

8)

 

[Dee Dee]

For what it's worth, consider the source and the times.
Right now I know several agents who used to sell higher-end homes in my area that are now paying their bills by doing BPO's. It's a way to generate a little income when times aren't so good for sales.

Terrell,
I agree with you that many appraisers don't look at the number and prices of active listings to get a better feel for market trends. For lisiting agents it's standard proceedure in order to to see what the competition is when they're putting a house on the market, at least if they hope to sell the property in a reasonably short amount of time.

 

[Richard Carlsen]

It doesn’t hurt to look at the listings once in a while but in appraisal work, we are required to only use the "success" stories (read "SOLD") in our analysis in the sales grid. My personal procedure is to ask the brokers when I stop in for a key or talk to them on the phone what is going on. Is the phone ringing? How about walk-ins? Are they real buyers or just tire-kickers?

Until they put a spot in the grid for offerings, I'll stick with relying on the SOLDS for my analysis.

 

[Jo Ann Meyer Stratton]

I look at all properties similar to my subject that have sold, available for sale or have been available for sale in recent history. If there are several properties very similar to my subject either active or expired after over six months on the market with askings prices in the $60,000-$70,000---then that sure does indicate my subject would be be worth $80,000! Since my area is predominately FSBO versus MLS, I keept close track of properties available by owner in addition to the ones listed in MLS. After six months of the FSBO with an asking price of $60,000, then listed with a realtor for four months with an asking price of $65,000, the final sale price of $55,000 doesn't surprise me a bit. But all of the market activity is very important. For Comparables #4 and higher I quite frequently use active, pendings, expired, withdrawn, canceled--and some times when they are indicating a lower value, put the most weight on those versus the ancient history of the solds. And Fannie Mae only requires the first three to be closed sales, after that it is whatever the appraisal problem indicates. In my opinion in situations like that, that current market is more indicative than the past. My software can handle up to 9 comparables--and that becomes a feasible way of handling the problem in my unique area.

 

[Mike Garrett RAA]

Everyone has had some good points on this issue.

1. BPOs are not required to follow the same guidelines we are.

2. In my market BPOs tend to be higher...not lower.

3. Appraisers should look at the entire market not just closed sales.

4. Real Estate Agents generally have a better "feel" for the "trend" of the market than we do BECAUSE they see the drop off in contracts before we do.

5. We work in retrospect, as a general rule.

6. Trending is an important part of appraising.

7. Unfortunately alot of appraisers are "form fillers" not really appraisers.

8. If you don't do a CMA (provided you have the service available) you are only doing part of the job.

9. Pending sales, expired listings, withdrawn listings are as important as closed sales to "determining market value"

10. Any idiot can write an article....I wouldn't sweat it!

 

[Mike Garrett RAA]

Hey Bob..do you mean the real estate agent was "high" when he/she took the listing. Can just see them singing the song "And then I got High" on the way to the appointment.[/b]

 

[Thomas N. Morgan]

Terrell,

Yes, appaisers should look at listings. But no matter what is said about this subject, an appraiser is basically standing in the present, looking at the past. A real estate sales person is standing in the present and looking toward the future.

A broker is trying to predict what a property WILL sell for. But technically, the value we present is supposed to be an estimate of what the property most likely SOLD FOR on the effective date of the appraisal.

There's big difference in the two. I lot of my work now is estate apprasials. I look at it as being somewhat like reconsructing a crime scene. The property sold on the day the property owner died. But what did it sell for? So, I try to identify and examine the facts and circumstances that led up to that sale.

Most of us do work for clients who could care less about the amount of a hypothtetical sale on the effective date. Prospective sellers and lenders want to know, what can I get for it? So to answer that question, we are talking about future value, not present value.

That is the basic difference between a true market value appraisal and a BPO. They do not have the same objective.