The process is a combination of pros and cons.
There are a myriad ways to determine home appraisals. One is through broker price opinion where a property’s value is calculated by a real estate broker or sales agent through the determination of the value of the surrounding properties, historical sales trends in the community and all other costs. Contrasted to an appraisal, BPOs can be carried out by real estate agents whereas the former is strictly performed by a licensed appraiser.
An appraisal is expensive to request so banks usually prefer a BPO instead when selling their Real Estate Owned properties. Most are priced at $50 or less and can be delivered to the bank at a faster rate. When short selling, it is also important to consider a BPO. A seller would want the price of his home to be low so that he can attract buyers and eventually avoid foreclosing the house.
Recently, the Washington Post published a report that claims BPOs are contributing to the plunge in home values. It states, “One problem is that selling BPOs to value houses violates the law in 23 states, according to appraisal industry leaders. In other states, BPOs may not be prohibited but critics say they may be far off the mark in accuracy – typically coming in below appraised values. That’s partly because agents who perform the BPOs may set the value extra low to ensure quicker sales. When BPO-valued houses are listed at fire-sale prices, they exert a downward pull on the values of other houses in the neighborhood because, under current lending industry underwriting guidelines, appraisers must consider recent listing prices as well as closed sale prices.”
The accusation may be right since there are many cases where BPOs are abused by brokers in order to sell more homes. But in defense of brokers, legit practitioners follow the Broker Price Opinion Standards and Guidelines to help them adhere to the fundamentals. Brokers would never set the prices that the market can’t afford and because general housing values are already low, buyers would expect trends to follow the same path. As long as brokers stick to the rules, there shouldn’t be any violation even if no oversight is administered on them.
BPOs are cheaper, easier to perform and faster to release. Could it be that appraisers are losing millions from BPO requests that they’ve searched a reason to blame brokers?