Broker price opinions

23 Replies

Hi, I’m a new agent and one of the brokers I’m interviewed with mentioned the opportunity to fill out BPO reports in order to generate a little bit of income while sales are slow.   What exactly does does a BPO entail and is it worth it? Does a broker has a special license to do this, or can any license agent do this under any broker?   Yes, I could just ask my broker but I always feel it’s better to get a broader range of opinions.   

LOL. Well, in my state, and in most states, you could be acting illegally for appraising without a license. Until recently in WI, it was illegal for a broker to appraise without a license, period. Lobbyist groups successfully got the law changed to allow brokers to perform appraisals, however only in certain circumstances. The circumstances are limited to servicing or attempting to solicit a listing client. This makes sense as a simple valuation of property would be necessary to a broker for these purposes, and the lobbyists used this scenario as the basis to get the law changed. However, abuse of the law is rampant in this state and across the country, where banks are ordering BPOs for all sorts of uses outside of listing services. Being an insider to the valuation industry, I can tell you these infractions are thousands, maybe millions of occurrences.

Further, it is likely required a BPO be developed by a broker, not an agent, but don't quote me on that part, just food for thought.

Abuse of this will likely continue until enforcement happens, which has so far not happened. However, consider that each appraisal you do, and yes it is an appraisal (in most states by definition), could be a separate offense.

Banks have less liability, except they have ordered and relied upon a product that was illegally developed. They have lots of lawyers and lobbyist, so maybe they wont ever get in trouble.

Brokers have the NAR, so maybe they wont get in trouble either.

All said, this is a lawsuit waiting to happen. The valuation industry is currently in turmoil, so I would advise that this sort of thing may be on the lawmakers radar. BPOs were recently allowed to help with some of the valuation industry problems, but they have not helped and could be argued have caused problems. Lawmakers are currently looking for solutions for the industry, so again, I would advise to not think the issue is off the radar, just because the abuse has yet to be enforced. 

Like I said, brokers in WI may perform appraisals only when it is in connection with an existing listing or in attempt to acquire a listing. So, if a broker does a BPO for portfolio purposes or any lending, they are performing an appraisal illegally in WI, which they do en-mass every day. I am going to laugh very hard if the hammer ever comes down on those that have performed appraisals illegally. Each one of them should have known better and they all acted with disregard for the law to earn a profit. The reason this can be significant, is that it could harm the public. Here's an example from personal experience.

I personally got a HELOC where the bank used a BPO for the valuation. There is exactly zero excuse the broker could use to justify performing an appraisal in that case - but they went right out and did it anyways. The broker over-valued the property by quite a bit, enough that if I had borrowed all the bank was willing to lend, I would have been far enough underwater to cause serious problems. The terms of the HELOC changed a short time later, and the bank sent out a second broker. During conversation with the second broker, she asked me what the first broker valued the property at and I told her. She also appeared to have that information without asking, as she used what I said to confirm what was written on her assignment sheet. She then made the statement that "I don't like to come in under the first one". True to her word, she came in higher than the first. The only thing that saved me was that I am an appraiser and knew what the likely value of my property really was, so I didn't borrow more than I knew was prudent. The problem is, most people don't know what their own property is worth and will rely on a "professional" valuation instead. Brokers are not licensed appraisers and subsequently are not held to any standards - it's a free for all without any recourse for the public. This is one way people get underwater and end up in foreclosure. Good for REI, bad for everyone else.

Check with your state to see what is and what is not allowed. Check with federal rules too. Have fun with that - lol.

@Maxwell Silva

You have to be an actual broker to perform BPOs and usually get a certificate in BPOs.

They generally aren’t worth it. Put it this way...

If you go through the effort to sell enough homes to become a broker, why would you do BPOs for $50 a pop?

However, if you plan to be an REO listing agent during the next down turn, then doing BPOs is one way to get friendly with the banks. Otherwise, it’s not worth it.

@Merritt Steinbach @Christopher Phillips I don't know exactly what the law for this is in New Jersey. I will do more research. From what I understood it was something somewhere between an appraisal and a CMA. I think it was mentioned it was primarily for REO listings. Thanks for the heads up.

@Maxwell Silva Back in my youth I briefly worked for an REO company. We would get drive-by BPOs on portfolios. Some would do them for the $50-$75 fee but not too many. Usually the question that I got was "Well, do I get the listing if you get the portfolio?" If the answer was "yes" then it was (to them) a good use of their time. They make a couple of dollars and if the portfolio was actually purchased then they would get a listing. But the value was the potential for the listing, not the $50-$75 fee. Keep in mind this was circa 20 years ago so advice from folks like @Christopher Phillips is probably far more salient.

@Maxwell Silva

A CMA is essentially pulling sheets from the MLS. Usually 3 solds, 3 active, 1 expired. That's basically it. There's nothing more to that. No analysis. There are software platforms to add adjustments to properties that aren't exact comps like 4 bedrooms vs 3 bedrooms. The average agent will pull the MLS sheets and call that a CMA. There isn't a standard to the CMA. It can be rather accurate, but it depends on the experience of the agent.

A Broker Price Opinion (notice the keyword broker) is closer to an appraisal, but doesn't require an Appraiser's license, so it is much cheaper. There are 2 types: drive-by only (photos of the exterior) or interior.  Interior style is better, but sometimes the broker doesn't have physical access to the inside of the property due to the occupants.

The BPO report is an actual report. Usually 5-10 plus pages of analysis and photos of the target property and the comparison properties. The banks will order at least one BPO initially and then require another one if the BPO expires or as a transaction progresses.

It can 2 or more hours to complete a BPO. You need time to travel to the location, take the photos, then create the report. At $50, your time is only worth $20-$25 per hour. If you are efficient, and can do one in a few minutes, then it might be worth doing them to make good with the banks to get REO listings.

But, the best way to REO listings is to sell a lot of them on the buy side. Especially with small, local banks. They'll see your name come up a lot and eventually you'll start to have conversations about getting assignments to list.

Being an REO agent isn't all that it's cracked up to be. Commissions are low per house. You make more on the buy side, which doesn't have any headaches. You have to do them in large volume, deal with listings at short notice. Spend money out of your own pocket to secure them, deal with basic maintenance, and usually have a large staff of people to deal with them. You have a short deadline to get reimbursed after a sale is completed. In a hard recession, it's worth it. When there are high priced homes begging to be sold in a boom, it's not worth being in REOs.

If you want to get into REOs, show a lot of them to buyers. You make more commission on the buy side and you never have to worry about changing locks or boarding up windows because someone broke into the house to steal all the copper pipes...

Originally posted by @Andrew Johnson :

@Maxwell Silva Back in my youth I briefly worked for an REO company. We would get drive-by BPOs on portfolios. Some would do them for the $50-$75 fee but not too many. Usually the question that I got was "Well, do I get the listing if you get the portfolio?" If the answer was "yes" then it was (to them) a good use of their time. They make a couple of dollars and if the portfolio was actually purchased then they would get a listing. But the value was the potential for the listing, not the $50-$75 fee. Keep in mind this was circa 20 years ago so advice from folks like @Christopher Phillips is probably far more salient.

Right. So first of all, your story is written in a way that is difficult to discern exactly what the case is. The final statement about working to acquire a listing is valid, and is of course why a broker would do a BPO on the cheap and also provides a legal basis to do it in the first place. However, and this is where the wording of the story is key, if the broker in the story does a BPO for a portfolio, and they do not have a listing contract with a lender, they are doing it as a "favor" (and I say favor because of the low fee) for a potential client type who may, or may not, have listings for them in the future, and that may be illegal. This may seem like a fine line and it is, however in appraisal, the intended use of the appraisal is always key. I would say this sort of engagement walks a very dangerous line. The key difference is doing BPOs to acquire a certain client, vs doing a BPO to acquire a certain listing.

Now, the wording of the engagements and stated purposes of valuations on reports could be massaged (and when I say massaged, I mean misrepresented) to get around these sorts of troubles, however that would open up an ethics can of worms for the lender (and for a knowledgeable broker), who believe it or not, like to avoid such things. Then again, it would shock me not to find that occurring. Lenders are quite pleased with their $50 inspection/valuations. Why any broker would do these for so little is mind-boggling. I wouldn't show up for an inspection for $50, let alone research, develop and write up a report. A desk-top appraisal is worth more than $50, or so one would think.

What would be acceptable, is a bank that engaged a broker for a price opinion, when the bank was soliciting brokers to list the property. This would be the stage when the bank has decided to sell the property. What would also be acceptable, is once the broker attained the specific listing, the bank then wanted a subsequent BPO for portfolio purposes, because the broker would be servicing the clients specific needs pertaining to a specific listing already under listing contract.

So, if you were a broker who had the REO contract for a lender, meaning it would be you who was going to list and sell all the properties, you could do BPOs for portfolios. However, if you did not have a listing contract, but wanted to get one from a certain lender, and thought you would do a bunch of portfolio BPOs for them in an effort to win their affection and potentially their business down the line, you might be breaking the law. Its always about the stated intended use of the appraisal. If that use is portfolio, I would advise you are under listing contract with the lender first.

If you are doing a BPO for lending purposes, you are likely breaking the law.

Different states may have different rules, so I would check with your state.

@Christopher Phillips  @Merritt Steinbach  Thank you for explaining the process and in depth explanations.   After looking a little deeper online as of 2013 it is perfectly legal for licensees to do BPO’s in NJ, as long it is clearly stated in the report IT IS NOT AN APPRAISAL.   Now  the reasons for the broker to do them, weather to attain listings or what, I do t know.  I guess I will have to ask him that specifically.   For myself, as a new agent with no clientele or experience, I see it as an opportunity to learn, get some listings, and earn a little extra, even if it’s $20-$25 an hour. ( assuming it’s all totally legal @merrit Steinbach). @Christopher Phillips I don’t know exactly what niche I want to get into yet, but getting my name out there with the banks doesn’t seem like a bad idea.   My only question now is can I do this for any broker I sign with, or does that broker need some sort of special permit for BPO’s.   I haven’t found that answer online yet.   

@Maxwell Silva  you’ll need a lot of expierence before a bank or asset manager will give you a listing. BPOs aren’t going to get you anywhere... agents can to 3-5 years working BPOs to get a listing from a bank.

@Maxwell Silva In Texas, to perform BPOs, licensed agents are required to sign up with a BPO company under their sponsoring broker. No special permits are required but some BPO companies require you to do their inhouse training. The agent has to provide E&O and W9 information along with other supporting docs during the application process. Once all information and docs are on file and approved, the agent performs and submits the BPO in their name.

Though the pay is minimal per BPO ($25-$50) and can be time consuming i.e- taking exterior photos of property, running active & sold comps, entering and analyzing the data, and determining a valuation; it is a very good way for new agents to get experience  and learn to price homes comparatively.  Some agents get pretty efficient with doing BPOs by doing 20 plus BPOs weekly and the $25-$50 per BPO is not too bad.  It's also definitely good when things are slow and like you mentioned, it gets your name out there with banks.  However, I do agree with @Christopher Phillips , a lot of experience is needed before a bank or asset manager hands over a listing. 

@Ebony Martin thank you for the info.   I think the way you described it is exactly the same here in New Jersey.  Yes, I figured experience will be necessary in order to get listings.   But we all have to start somewhere right?   

@Maxwell Silva you are absolutely right.  I started with BPOs and complimented it with a PSA.  When I started getting listings, I was very confident that I was providing accurate comps to my clients where their homes didn't sit on the market.  Do enough BPOs and you actually become a 'pricing expert'; credible experience and a good selling point to your potential sellers.  I wish you all the best in your new real estate career. 

PSA’s. ( purchase and sale agreements). ?  How does that work?  Like I said, I’m a newbie

@Maxwell Silva No problem. PSA (Pricing Strategy Advisor) Designation. To obtain this designation, you have to take the Pricing Strategies: Mastering the CMA course. It's a great course that I found was very helpful as a 'newbie'.

@Maxwell Silva No problem. PSA (Pricing Strategy Advisor) Designation. To obtain this designation, you have to take the Pricing Strategies: Mastering the CMA course. It's a great course that I found was very helpful as a 'newbie'.

Originally posted by @Maxwell Silva :

@Christopher Phillips  @Merritt Steinbach  Thank you for explaining the process and in depth explanations.   After looking a little deeper online as of 2013 it is perfectly legal for licensees to do BPO’s in NJ, as long it is clearly stated in the report IT IS NOT AN APPRAISAL.   Now  the reasons for the broker to do them, weather to attain listings or what, I do t know.  I guess I will have to ask him that specifically.   For myself, as a new agent with no clientele or experience, I see it as an opportunity to learn, get some listings, and earn a little extra, even if it’s $20-$25 an hour. ( assuming it’s all totally legal @merrit Steinbach). @Christopher Phillips I don’t know exactly what niche I want to get into yet, but getting my name out there with the banks doesn’t seem like a bad idea.   My only question now is can I do this for any broker I sign with, or does that broker need some sort of special permit for BPO’s.   I haven’t found that answer online yet.   

This link shows that you are required to be licensed to appraise real estate in New Jersey:

http://www.njconsumeraffairs.gov/rea

From that page, you can navigate to the laws concerning appraisal in New Jersey, where you will find the definition of appraisal:

http://www.njconsumeraffairs.gov/Statutes/realesta...

Here is a link to a bulletin from your state addressing BPO's, and probably where you got the idea that so long as you state it is not an appraisal, it is not an appraisal:

http://www.state.nj.us/dobi/bulletins/blt13_05.pdf

However, if you read the entire text and not just the part that says you should place a disclaimer statement in a BPO, it clearly says a BPO is an appraisal. Circling back to the first link, you will remember you must be a licensed appraiser to do perform an appraisal. The thing to truly think about here, is that just because you say it is not an appraisal, does not make it not an appraisal. An appraisal is an appraisal because it is an appraisal, not because of the way it is labeled. Make sense? (You could say you are not a drug dealer when you sell drugs, but you are still a drug dealer.)

The bulletin (last link) references two sets of laws and notes that the laws are intended to be changed in the future for clarity. That in itself ought to give a person reason for pause, because just because one set of laws says ok, that doesn't mean you can't be punished under another set of laws (think about the drug laws on the state and federal levels for example).

There are two exemptions for which New Jersey allows a broker to perform an appraisal (BPO). The first is in connection with a listing. The second is for a state chartered bank or for a federally chartered bank, when the federally related transaction does not require an appraiser (that's how I read it). As far as when a federally related transaction does not require an appraiser as I understand it, is never (that's why appraisers exist my friend, its a law to use them). However the laws are complicated, there may be exceptions, and I would advise you look into them before jumping into such murky waters. Research what a federally related transaction is, and you might discover law so thick it will make your head spin.

Like I said, abuse is rampant and the laws change from state to state. Enforcement has not yet happened and I stress the word yet. The last thing you should do is trust others who are doing them, because most don't understand the laws in the first place. You may be getting very bad advice in those cases. Remember, each $50 appraisal you do could be a separate offense.

The laws in WI are much more clear than they are in New Jersey. So, for any would-be broker-appraisers out there, I advise all of you research the law before you leap into doing them.

@Merritt Steinbach I understand your an appraiser and are completely against this. I read it as them comparing BPO's to CMA's and not an appraisal. You keep saying it's an appraisal. Don't know what to tell you. Thanks again for digging up that info.

@Maxwell Silva ,

A "CMA" is a "CMA"

A "BPO" is a "BPO"

A "ZESTIMATE" is a "ZESTIMATE"

An "Appraisal" is an "Appraisal"

A "Neighbors opinion" of value is a "Neighbors opinion"

What criteria a bank decides they want to lend on is on them not you. If they want to hand Fred $500,000 because Zillow says his house is worth it, then they can do what they want. Make it clear that it is an opinion and not an appraisal. Appraisers have a completely different set of requirements and licensing, doing an actual appraisal is something you can't do (Nor should want to)..... However CMA's are within your wheelhouse and exist for you to provide market analysis on what an AGENT/BROKER would list the house at. With the BPO, you would have your broker review and critique them and then pass them on. Once they have faith in your work then they will have you just send them over.

If the bank chooses to list with you then great it was what you provided it for. If the bank decides to lend someone money on it, then that's on them.

Good Luck!

DISCLAIMER: Not legal advice just some ramblings of a dolt on the internet.

Mike Cumbie, Real Estate Agent in NY (#10401285310)

For the past five years or so, I have completed broker price opinions daily. In my state, New York, I am permitted to complete broker price opinions legally as an agent. \

Most of the time it is straight forward, take photos, pull comps, and then upload photos and fill in form. It is time consuming, so data entry assistance may be in your favor. However, you have to find out if the BPO company permits the use of data entry assistants.

It is also a good way to brush up on CMA process so that it can be done when you have a potential listing.

Some companies have high volume, some companies have low volume. Some days there will be an abundance of orders to accept, some days there will be one or two.

Most BPO companies require Errors and Omissions insurance which your broker should already have.

Some brokers require the agent to have their pay sent to the broker's office and have them take a cut of the price opinion. That is not the best way to go because you want to keep as much of the fee as possible.

Would I recommend you to start working BPO's to help keep you afloat? Absolutely. 

Most companies require the photos to have a date stamp of the date of inspection. I use point and shoot digital cameras under $100 that allow you to add the date stamp. I also use my cell phone if in the rare instance the camera dies. However, you may need to find an app that adds date stamp because I know my iPhone does not have that feature. Just search app store for Date Stamp and I am sure you will find a few free apps. 

Keep a list of all the addresses that you go to in a day and then reconcile how many miles you did for that day. Then at the end of the year, you will add up all totals and use them for tax deductions. 

You won't be taxed per report, so be sure to keep a reserve of money for the end of the year for your taxes. 

If you have any further questions, do not hesitate to ask. I wish you the best of luck!

Most reports have disclaimers such as those I added to this report to distinguish that it is a broker price opinion and NOT an appraisal. 

Originally posted by @Maxwell Silva :

Thank you @Joseph Profaci.   I’ll be contacting you in near future.

Anytime Maxwell!

Talk soon and have a nice day.

Joe

Originally posted by @Joseph Profaci :

Most reports have disclaimers such as those I added to this report to distinguish that it is a broker price opinion and NOT an appraisal. 

Using this logic, a person could open up a barber shop without a license, so long as they posted a disclaimer somewhere stating their services are not haircuts.

And by the way, USPAP has no legal authority. The disclaimer above was written by Computershare Loan Services.

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