Background –
The broker price opinion (BPO) is a way of estimating and expressing the value of a property by a qualified Broker.
Reasons for seeking a broker price opinion may be many, but typically to estimate the property value prior to purchase or sale, understanding collateral value when there is pending decision on a mortgage, refinancing, estimating the liquidation value, buying out a partner’s interest in a property etc.
BPO is more popular than an appraisal due to its cost. Because a broker price opinion is supposed to be less comprehensive, it is usually a fraction (1/10th approx) of the price of a full appraisal. It’s also important to note that an appraisal is provided by an independent appraiser and is not biased in its estimate of market value. On the other hand, a broker price opinion is typically performed with the intent that the broker will ultimately win the listing, and as such the underlying motivations behind a broker price opinion may be different than that of an appraisal. But both products might have to be construed with a pinch of salt.
State of mind of an investor when the BPOs are ordered –
Investors will be eager to know the current collateral value of their delinquent loan portfolio, their investments are at stake, or they may be in the process acquiring a large mortgage portfolio. Timing as well as the accurate information is crucial to make financial decisions. The job is entrusted to Loan Servicers, but they are still worried about the accuracy of information received from them. Investors mostly feel it’s better to rely on historic data with a small margin of allowance for changes to it. They create guidelines for the servicers to follow, but the guidelines change for each property based on the type of decision to be made with it.
Challenges for a Servicer –
Servicers’ job is to fulfill all that is expected by the Financial Institutions, they must adhere to guidelines laid out by the investors as well make profits out of every opportunity. They hire brokers who can get them the BPOs for lowest fees (price starts from $28 onwards, average being $40) within minimum time frame. They promise listings to make the deal look more attractive, but a Broker may never get a listing even after doing 1000 BPOs for them. They rate brokers on all possible parameters to ensure accuracy, cost effectiveness, speed, rapport with the servicer etc. Once they receive the BPO back from the Broker, they try to make sure all guidelines are met. It is a difficult task for the servicers to find out suitable Brokers in each location where the properties are located and then pass on the client guidelines to them, and then educate them as to what is expected. A servicer typically works for different investors and each investor expects a BPO customized for them to suite their guidelines. The formats are not standardized unlike appraisal 1004. They will always be in a hurry to turn back the BPOs to investors AT ANY COST.
Difficulties of a Broker –
A Broker makes his living off his Commission Income which he earns after facilitating selling and buying of properties which is his core business. But getting an opportunity to sell and getting leads for these properties is a major science and art. A broker relies mostly on the servicers and investors to get him an opportunity to sell a property, though he may look for opportunities from elsewhere. This is when he finds Broker Price Opinions an attractive deal, a broker is always hopeful that he may get a listing in future if he does the “favor” of completing BPOs for the Investors. Sometimes he gets rewarded for his efforts but sometimes not.
Few brokers try to make a living or a passive income doing these BPOs. The challenge lies when a broker tries to impress too many servicers/investors. A Broker needs to be registered with multiple servicers/investors just to ensure he gets a steady workflow of BPOs as well as listings to secure his income.
There are many other things a Broker must keep in mind before taking up the BPO business –
- State Laws and Regulations, Professional Code of Conducts by the Realtor Boards, E&O Insurance.
- Mandatory Background checks for each servicer — which may cost a Broker a full month’s income to keep his profile up to date with all the servicers, why should there be a necessary of background checks for a practicing professional who already holds a license.
- Geographical boundary and access to relevant Real Estate data from Multiple Listing Services and their subscription costs.
- Brokers need to be very conscious about their scores with the servicers. They end up spending a lot of time and take all the pain to make the servicer happy who may give them the opportunity to list a property in future also give them more BPOs to complete on a regular basis.
- They need to decide on the amount of time that they can spend on a daily basis to complete the BPOs.
- The type of help they can ethically take from their assistants. The costs involved in hiring assistants, maintaining an office, cost of software licenses, driving to the property, fuel, tolls and vehicle maintenance expenses, taxes, insurance and licensing etc.
- Physical security is also a major concern when they visit properties in remote locations.
Now the question of profitability and the efforts required to complete the task in their hands arises –
A typical BPO takes 45-60 minutes to complete for a tech savvy broker if you ignore the time it takes to take photographs. Many of them may claim that a BPO can be done in 20 minutes, but is it really possible, keeping into account the efforts needed to find comps keeping in mind the specific investor guidelines for each order and then beautifying the BPO to make it look convincing? In the past 10 years it is noticed that the requirements of a BPO form is ever increasing. The following disclaimer seems meaningless these days – “All the contracts between field agents/brokers and the third party companies clearly state that these are simply OPINIONS and not appraisals. “ The BPOs have become more demanding than appraisals. And funniest part is BPOs are reviewed by Appraisers hired by these servicers and investors who expect the same professional knowledge portrayed on the BPOs. Completing an Interior BPO especially when the property is damaged requires extra handyman skills in identifying repairs. Adding to this, a broker might have to deal with more than 100 different formats of BPO forms, so is there any room for developing your muscle memory to speed up the BPO fulfillment job? There are many auto-fill software apps on the counter claiming to complete the BPOs for you in a jiffy, are they really taking care of all your efforts as they claim it?
Now the big question – IS IT REALLY WORTH DOING BPOS?
The answer is No and Yes
No – Because the rules of this game are not fair as they appear. The fee is low, expectations are high, and it is not humanely possible to do more of them without any help from others. Taking others help is not ethical as quoted by all involved in it. Because they want to know the price opinion of a “Broker” and not anyone else, this is a good thing to ensure protection of Homeowner interests. But how many a broker can do in a day, realistically 5 to 10, but one should not forget selling properties because they are busy doing BPOs. One will end up earning a small income. If one can strike a balance between selling and doing BPOs it is bliss and a great sense of professional achievement.
Yes – you can make money if you cut down your costs and efforts drastically and stay focused at your core business.
There are many ways this can be done ethically –
- By hiring photographers at various locations to take photos for you, this may sound unethical based on the books, but what is the major difference between a Broker and a well trained property inspection photographer? And how much time will anybody get in a Drive-by scenario to thoroughly inspect the property? Observations can be made based on good quality photos. Studying neighborhood information from MLS, tax and satellite images. Brokers can still be a part of all interior inspections, but Drive-by inspections can definitely be assigned to a capable photographer who stays near to that property. (you will end up saving at least 1 hour for each property)
- Finding subject property details and finding comparable properties for your BPO. Many of the brokers prefer to do this on their own because their knowledge about the local market, local geography, neighborhood boundaries, location influence, schools, property features, condition, style, transaction and listing history etc may not be compared with anyone else who are not qualified enough. But that doesn’t mean that this skill cannot be perfected by a non-broker. With proper training and experience, and based reliable data sources and check points an assistant will be able to help brokers.
- Uploading photos and noting down all the repairs and making adjustments, again this process can be trained and handled by an assistant. A broker need not spend time, resizing photos, making sure they are date stamped for certain clients and not date stamped for certain clients. Uploading the image of his signature, listing down all the repairs, making adjustments etc. A broker should identify all the mundane and monotonous tasks that requires no special skills to a reliable assistant and should only focus on the logic behind the price opinion. Buying a license for auto fill software and trying to struggle with all the work is counterproductive for a Broker’s profession.
- After an assistant completes the form in entirety, a broker can review the entire BPO form for accuracy and can analyze the logic based on which the property value can be arrived by quickly revisiting the market data on the MLS, he can summarize the whole process in a comprehensive comment before sending the BPO back to Servicers.
In my next article I would be covering about the additional challenges faced by both type of brokers, and the kind of mistakes they do which could be detrimental to the BPO business in the long term. I have been assisting various brokers across the country and based my 13 years experience in this field. I have seen the businesses flourishing for many of them year on year since the time I started working with them. And I have also seen many of them losing the major chunk of business half way because of unethical practices. I would be happy to know your opinions to enrich my knowledge.