Heavyweight Fight

In this corner it’s the linchpin of the mortgage transaction, relied on for the most accurate valuation of residential real estate – the appraisal. In the opposite corner is the challenger, known for accurate market values and generally more bottom-line friendly than the appraisal – the broker price opinion.

It’s no Thrilla in Manilla – it’s not even Rocky Balboa v. Apollo Creed but it is worth talking about. There is no clear answer as to which provides the better service to a client. The plain truth might just be that both have a role to play in the real estate industry. Appraisers generally feel like BPOs take money out of their pockets and it doesn’t help that the FDIC now allows them for loan modifications. Brokers will, on the other hand, tell you that BPOs are a necessary part of the real estate industry.

Chances are that while each finds value differently they generally use the same data. This article suggests that it’s in the best interest of consumers that we all just get along.

The broker has an eye more toward future prices (what they can sell the home for, within a few weeks). The appraiser bases most of their analysis on closed sales. Which means in a very volatile market, values could be changing so rapidly that between the opening and closing of escrow (21-45 days) the values have changes 1 to 5%. Therefore, once the sale closes it may already be considered old.

At the end of the day the most accurate value is going to come from utilizing a combination of both appraisal reports and BPOs. Maybe it’s true and maybe not but it supports the idea that there is a role for both in the industry.

  1. Stan

    It’s interesting that the writer forgot one little fact — BPO’s are ILLEGAL in many states. In my state CMA’s are legal in order to obtain a listing, but being paid a fee to render a value estimate requires an appraisal license from the state. Brokers are specifically not allowed to perform value estimates for a fee,as they are considered advocates, not disinterested 3rd parties. But hey, let’s cut corners when ever we can.

  2. Jerome Nagy

    We are not suggesting cutting corners. We support policies that provide for safe, affordable mortgages for home buyers.

  3. Todd

    May I suggest corners are being cut by FDIC, laws being broken, which could cause a major class action lawsuit problem down the line. Do BPO’s involve an interior inspection, measuring of GLA, etc., or do they just drive by with their X-RAY vision glasses on? What if an interior inspection would have changed the estimate?
    What if the estimate is ILLEGAL?
    Go ahead, dig in deeper!

  4. David

    How about this solution:
    Allow Realtors to appraise properties with no appraisal license required
    Allow appraisers to sell real estate with no real estate sales license required.
    Does that place it in a better perspective?
    Why require an appraisal license and call it a profession if you’re going to make exceptions? Valuation is valuation and sales are sales. Just because Realtors spend a few hours learning to do a comparable sales grid doesn’t mean they know what they’re talking about with regards to valuation.
    A licensed appraiser is required to complete at least 2,500 hours of valuation work before they are given their license. Most appraisers will also tell you that at that point they are nothing more than a loose canon. It takes around 7 years of fulltime experience in this business to really know what you’re doing (that’s around 3,000 home appraisals). A great many appraisers will argue this point but it’s true. At around the 7 year mark (if you’ve done a great deal of traveling) you will have encountered most of the strange things that can have an impact upon the value of a property. If you only appraise new homes in perfect condition you can become a master in the field much quicker. I don’t know many appraisers who specialize in only new homes though.
    With that being said; how much does a Realtor with 5 years experience and perhaps 70 sales truly know about property valuation?

  5. Tim

    Recently I completed my Realtor ethics training for MLS participation although I am an appraiser. It was interesting to note that in some states BPO’s can used as “Valuations” however, the NAR Code Of Ethics state that these “Valuations” must contain; a scope of work and nature of assignment, statement of limiting conditions with geographic competence language, definition of work performed/client, ect. These items are taught to entry level appraisers and updated every two years in continuing education as changes and exposure to liability has increased over the years. If you are a Realtor doing BPO’s as “valuations” are you in compliance with the Code of Ethic’s” ? You might also want to find out if your E & O Insurance covers this activity. If not you might be open to a civi lawsuit if your “valuation” cannot be justified in court with the expert witness on the other side being a Certified Appraiser with many years in the business. Liability is very high here my friends.
    BPO’s and Realtor Valuations do have a place in the overall real estate business and in some instances are a viable alternative. Just be aware that if you don’t know the legal ramifications of what your are doing you are open to some severe monetary penalties that are pretty easy to prove.

  6. Susan

    I have been selling real estate in my market area for 15 years and completing BPOs for 12. I am a member of NABPOP that offers education to brokers to be certified to prepare price opinions. I am aware there is a difference between a VALUE and a PRICE opinion. I have never given a VALUE in a BPO or CMA. This is a no brainer, and experienced agents that prepare BPOs know this. All a BPO is some agent’s opinion of where the price should be set on a piece of property so that when it does sell, it will appraise. BPO agents get a little bit of money, $30-80 depending on the type of inspection, to take time out of selling real estate to do these. I really don’t see what the problem is, but more education on the part of the BPO agent might be one solution.