How the Broker’s Price Opinion Drives Foreclosure Sales
In the wake of the unprecedented back of foreclosures, housing values are often now determined through a process known as the broker’s price opinion (“BPO”).
BPOs are popular in the foreclosure process because they are cheaper than an appraisal. A regular appraisal might cost $500.
A BPO costs only a fraction of that amount and it can be done quickly. Those factors explain both its popularity and its pitfalls. The holder of an REO property contracts for a BPO. BPOs are often performed by real estate agents. The BPO establishes a value that can be used to judge if an offer should be accepted. There are two types of BPO’s – the drive-by and the internal. Drive-by BPOs pay about $50 - a fee that makes a profit virtually impossible. Internal BPOs can pay about $150, but then the broker must go into the home and do a more thorough assessment.
Freddie Mac and VA want an offer for at least 88 percent of BPO during the first ninety days that the property is on the market.
The key hold up to this process is that it is not driven by the price of the home but rather by comps. The BPO can ignore the fact that a home is in foreclosure and price it as if it was selling through the normal marketplace. The fact that so many of these homes are done with minimal time and sometimes through realtors from outside of the immediate market area means that the chance for making an error are high. The cost of an error is never good. When the BPO is too high, it creates an obstacle to the sale of the home. When the BPO is too low, it creates the opportunity for an unnaturally low sale. If the home is owned by a government agency, then a low BPO also undermines taxpayers.
The system itself is somewhat unregulated. BPOs have an incredible amount of power in the foreclosure market, but they do so with very little scrutiny. The Consumer Financial Protection Bureau is currently endeavoring to determine what kinds of non-bank entities it will regulate. This is the perfect kind of function for this new bureau. It deals with a very important financial event in the life of any consumer – the purchase of a home – and its actors are completely unrelated to a bank.
