BPO -vs- Appraisal

[Lloyd Bonafide]

BPO’s are no better and no worst than most appraisals. Many ‘buyers’ of appraisal products argue that BPO’s are a better products because most BPO’s present three closed sales and three active listing.

Once in a while, a well-done BPO on a particular property may be as accurate as a mediocre appraisal, but I don't think that's usually the case.

Occasionally, a lender may hire a broker to do a BPO who knows the neighborhood market well, and who knows how to fill out the BPO form, but often, the broker, (or agent) doesn't know how to fill out the form, and doesn't have any clue how to make market adjustments on the form. And often, the agent that takes on the BPO doesn't really have much knowledge about the subject neighborhood - they are just trying to get the REO listing.

Also, if the agent does an interior inspection, they don't do as detailed an inspection as an appraiser, and I don't think they typically measure the property if public records seem accurate. Post-closing BPOs that are done for an investor are typically drive-by appraisals, I believe.

 

[Richard Carlsen]

If a BPO is USPAP compliant, meets all of the requirements of any applicable Supplemental Standards, is completed on the required reporting form and the signer is a duly licensed appraiser, the secondary market would normally buy a mortgage where value of the security is based on that BPO.

But if the BPO does not meet these conditions, then the answer is, No. The secondary market would not buy such a mortgage.

 

[Lou Pope]

I'll weigh in on this one... With many years of servicing experience and having been involved in many secondary market transactions with several companies, I have yet to see a purchase agreement wherein the seller did not specifically represent and warrant that each loan file contained an appraisal.

 

[Joyce Potts]

Then you're living in a dream world - they are being used for loans. If you'll check, they don't even need an appraisal for a loan that don't exceed the a certain requirement. On top of that - so many loans were made on comp checks.

I've been HAMMERED on this Forum by Mr Rex countless times for suggesting loans are being made on AVM's, so let me ask you the same question he continually poses to me--where are you getting this information?

I'm not necessarily disagreeing with you, but I'd like to see if there is any reliable documentation to using BPO's to do federally related loan transactions.

 

[Mr Rex]

Ms Potts in her normal mis-characterization of what others say. I have never said that loans are not made using AVMs, I have consistently asked what the percentage of them actually are made using AVMs? I an betting only on low LTV/high credit scores loans and likley close to 0 over 80% LTV. It wouldn't be much of a stretch to think that couldn't happen with a BPO.

 

[Greg Bell]

HUD REO'S require a BPO and and appraisal , redundant..

 

[TJSum]

Then you're living in a dream world - they are being used for loans. If you'll check, they don't even need an appraisal for a loan that don't exceed the a certain requirement. On top of that - so many loans were made on comp checks.

Loans have been made on comp checks ???

 

[Joyce Potts]

Ms Potts in her normal mis-characterization of what others say. I have never said that loans are not made using AVMs, I have consistently asked what the percentage of them actually are made using AVMs? I an betting only on low LTV/high credit scores loans and likely close to 0 over 80% LTV. It wouldn't be much of a stretch to think that couldn't happen with a BPO.

Rex,

Oh, so I guess that Chicago Tribune article I posted months back that stated 65%+/- of appraisals were going to AVM's finally convinced you? Because whenever I posted anything referencing that FRT's were being made on AVM's you took exception--or was it just the percentage of loans? So I don't mischaracterize or misunderstand you in the future, what issue were you taking with me exactly? The % of appraisals that were going to AVM's, that any loans were being made on AVM's or both? Because it appears you've changed your tune. Or have I misunderstood something again?

 

[Mr Rex]

Maybe you could point me in the direction of your Chi town rag article? Again, I never needed convincing, I just don't think the numbers are that high. Does the article take into consideration LTVs, HELOCs etc?

 

[Parker]

BPO's probably aren't used to make loans. here's why. real estate agents do BPO's not appraisers. appraisers have e & o insurance and appraisals are the only thing the court recognizes as true value. so the bank can't really sue the real estate agent for fraudulent BPO's because they are not really appraisals. now here's the funny part. if an appraiser does a BPO then maybe they would use that because they can sue the appraisers e & o.

Michael,

A court will listen to a Realtor; a court will sue a Realtor. The reason a lender will use an appraisal vs. a BPO has more to do with risk exposure, cost and where the product is going (i.e., who they intend on selling the loan too). Since most loans are purchased by Fannie, Freddie or Ginnie an appraisal product is required. Private Secondary Lenders can set their own rules. Most Secondary Lenders want an appraisal so they too can resell (if needed) to Fannie, Freddie, or Ginnie. Bottom line, they do not care about the quality of an appraisal or BPO beyond the final number. The quality of a work product only matters when you are in court defending yourself. I have personally reviewed over 300 appraisals this year. Its sad to say that at least 299 of those appraisals have no chance of being defended. Granted, in my role as a reviewer I only see the appraisals that scare the underwriters.