Very rude awakening by mortgage lender - home valuation - should I dispute? (Phoenix: sales, brokers)

[Captain Bill]

Originally Posted by MN-Born-n-Raised

BPO's are a joke! Basically they pay real estate brokers $100-$150 to write up a comparables. Real appraisers would charge $400 to discover what a property is worth. So in reality, many of these unemployed real estate agents (turned discounted appraisers) won't bother to drive by the comparables or put in any time to figure out what the real value is.

BPO agents tend to just take picture and rush out as fast as they can. they are not getting paid enough to do a good job. So in summary, a real appraisal looks at the innards and it is why they are paid 3 times more.

Poorly done BPO's put a downward pressure on the values of homes. There are many many homes that are getting poor valuations because of turn-and-burn evaluations.

This is not to defend agents who do bad BPO's, nor to degrade appraisers; but to offer some information on the process.

Appraisers must take a lot more training, and be licensed. Their appraisal consists of a lot of algorithms, and they also have to compute the cost to replace. Therefore, it takes them much longer to do an appraisal, and the price is justified.

Appraisers can make the outcome of an appraisal match any number they wish, simply by making adjustments, the same way a BPO does.

Today, the appraisers are chosen randomly by loan companies. The loan company cannot choose any appraiser they want. The appraiser is usually from a different area and may not know the area they're in. They are also, and this is important, under pressure from the mortgage industry to bring in low appraisals.

Some BPO's are bad, and those are usually done by "the starving agent" who doesn't take the time to do them right. However, the companies who hire them have a scoring system, and when the agents turn in enough bad BPO's and/or have to go out and redo some, their score gets lowered and they are not called any longer.

Those who take their training seriously and do the job properly will have a BPO that is very close to actual market value.

But remember, both an appraisal, and a BPO has a lot of subjectivity.

Because we're into a sellers market and it takes me so long to buy a home for a client now, having to make multiple offers, I decided I needed to have listings in order to balance that out. So I took several training courses that are required in order to work for certain banks and asset managers selling REO's. Two of these training courses had more BPO training included.

(I used to do a lot of BPO's, but stopped doing them and funneled them all to a friend whose only business is doing BPO's.)

The Five Star Designation is the one that the majority of Asset Managers look for when looking for an REO agent. That one had the best BPO section of the others I've taken.

The REO agent will do an initial Drive-by BPO, because access to the home is not yet granted. That BPO is least accurate. After the home is rekeyed and trash-out, the agent will have to go and do an interior BPO. This one needs to be market value in the as-is condition with recommendations for repairs.

The bank will also hire another agent to do a BPO and compare that with the listing agents BPO. If there is a big difference, the listing agent will have to do another BPO, and if it's found that he's off on the first one, his "score" is lowered. So it's important that the listing agent have his/her BPO very close to market value in the condition, and be able to explain why he chose the comps and the corrections that were chosen.

The investor is the one who sets the final list price, and it may be above or below the BPO. However, the agent is charged with the home selling within 10% of his BPO. If it doesn't, then his score is lowered. When the score goes below a certain number, that agent is removed from the list.

There are some agents who make their living only doing BPO's. They have the infrastructure set up to do a lot of them, and they make a good living. They have a photographer who knows exactly what to look for in the homes, what pictures to take, and he emails the pics from the site. That photographer is busy all day. If the agent has any questions, the photographer can take more pics while there.

He has an assistant who does all the data entry, and the agent does the computations for the BPO.

The pay per BPO is very low. A Drive by is paid $40-50 each, and an interior is paid around $75. A few years ago it was closer to $150, but as starving agents started begging for them, the competition drove the prices down.

All agents should be able to do a good BPO because they have to help their clients determine the current market value of the home they're buying or selling.

[HonestOne1]

Originally Posted by Potential_Landlord

but financially speaking we made a wrong decision. Too impatient. We thought the house fell enough from 320k where it was last sold.

Correct. And don't you dare buy in 2011 either...

Some realtor will come on here and tell you that now is a great time to buy, and they said the same thing every year since 2005. Prices are dropping and will continue to do so. Rent and wait.

"Now is a great time to buy" is realtor speak for "now is a great time for me to collect a commission and get my own house out of foreclosure".

[khuntrevor]

Haven't heard a single complaint from any investor, who bought to rent out, after determining what rent would be and the proper ratios for his investment.

[_Charles_]

If you owe $140k and your home is valued at $140k - yes you are under water for PMI purposes.
You must owe 80% (in this case $112k) or less of the assessed value to get out of paying PMI.
Sorry home values here will continue to decline until the foreclosure rate stabilizes.

[MN-Born-n-Raised]

Thanks for the explanation Capt.

If someone hires a photographer to streamline the BPO process and the agent never bothered to step foot in the property, I don't have much faith they are going to get an accurate value. While a value is subjective, a 10% swing in an accurate value isn't acceptable IMHO. I'd trust a person that is located 30 minutes away who spent some time inside the home versus a low cost BPO that is plucked out of pictures.

I'd love for you to expand on why appraisers are feeling pressure to get lower values.

[themudpuppy]

Originally Posted by HonestOne1

Some realtor will come on here and tell you that now is a great time to buy, and they said the same thing every year since 2005. Prices are dropping and will continue to do so. Rent and wait.

"Now is a great time to buy" is realtor speak for "now is a great time for me to collect a commission and get my own house out of foreclosure".

I'm not a realtor, but I'm a potential buyer, and I believe now is the time to buy. Actually, I felt that January and February were even better, and I would have bought then if I could. I've been checking homes for sale for several months, and I see the supply of good homes in my price range dwindling the past couple of months. I'm getting pretty anxious about it too, because although I think my current home in TN will sell fairly quickly, I'm afraid that the supply of homes in my price range in Arizona will be next to slim and none by the end of summer. Investors are quickly snatching up those homes up right now.

[themudpuppy]

Originally Posted by Zippyman

They're supposed to do it automatically, but banks "forget" things....

Thanks. Looks like I'll have to call them and see what's up. It would knock about $24 a month off my mortgage if I could get rid of the MIP.

[MN-Born-n-Raised]

Originally Posted by tnp

I'm not a realtor, but I'm a potential buyer, and I believe now is the time to buy. Actually, I felt that January and February were even better, and I would have bought then if I could. I've been checking homes for sale for several months, and I see the supply of good homes in my price range dwindling the past couple of months. I'm getting pretty anxious about it too, because although I think my current home in TN will sell fairly quickly, I'm afraid that the supply of homes in my price range in Arizona will be next to slim and none by the end of summer. Investors are quickly snatching up those homes up right now.

I predict it will soften again this fall (normal patterns). If I was in your shoes, I would not be too concerned.

But wait, didn't Armls say it was going to soften to an all time low in May 2011 just a few months back??? Never mind May is when it's normally peak season.

When it softens again this fall (again normal patterns) that will give some people some ammunition to show that that market is on it's third drop. I certainly had a strong sense that the market was going to go up when I bought early this year. While I cannot predict what will happen in a year (too many variables) it seemed silly to think the market was going to drop in April and May.

[mjd2k]

Guess your opinion of BPOs depends on if you're buying, financing or selling. I put offers on several short sales and the BPOs the bank got were ridiculously high. In the end, they were way too high compared to what they sold for. My agent was getting frustrated by me walking but every one I walked on sold for what I said it was worth or even less. I based my offers on what I thought the comps were.

[khuntrevor]

Good for you...finally, a smart shopper. I don't even touch SS. However, my offers have been within 3% of actual sales price on many occasions on REOs. The counter I was offered at the time, wasn't even a real counter--not even close, and I walked. I told my agent, who she should be mad at. How many crawlspaces do you think these jackasses have been under? There can be 20,000 worth of work needed on a small house. Looked at a few in the Coronado--termite city. Some very haphazard remodel work during the boom.