Broker appraisal reports are being blamed by professional house appraisers and sellers for contributing to the depression of home prices across the country.
According to professional appraisers, broker appraisals or what are often called as broker price opinions are done in haste by brokers who are not trained in appraisal and who are not certified to do appraisals.
BPOs have increasingly become popular as lenders, overwhelmed by a lot of bank-owned properties, want to quickly put prices on their REOs to move them quickly for sale. While standard residential valuations conducted by professional appraisers take a long time and cost several hundred dollars for each valuation, BPOs cost only about $50 and can be delivered to lenders in just a short time.
In short sales, BPOs are also used frequently because of the speed with which BPOs are delivered to clients. On the Internet, a lot of ready-to-use BPOs or BPO software products are being offered to brokers so they can reduce BPO preparation costs as BPOs are only paid for around $50 each.
Licensed house appraisers are complaining that BPOs are depressing further the housing market by their low appraisals. In a testimony before the House Subcommittee on Financial Institutions and Consumer Credit, National Community Reinvestment Coalition executive
David Berenbaum called on lawmakers to outlaw the use of BPOs as substitutes for appraisal done by professional appraisers.
Gary Crabtree, chief executive of California-based Affiliated Appraisers, said that his research has proven that BPOs have been understating the market values of homes by several thousand dollars. Crabtree explained that BPO agents are lowballing their valuations to please bank asset managers who prefer low valuations. With low valuations, they can sell their bank-owned properties quickly through bulk sales to investors snapping up low-priced properties.
What will make the situation worse, Crabtree said, is that the sales prices of these low-priced bank-owned properties will be used by professional appraisers as their comparables since these are the recent sales in the area. These professional appraisals will result to lower valuations, further depressing the housing market in the area.
Real estate brokers, however, who are preparing BPOs reiterate that they are qualified to make BPOs because they have the real estate experience to back them up. They argue that they have more experience in the market than many of the appraisers conducting appraisals in their areas.
As the controversy about BPOs heightens, a number of states have started addressing the issue of BPOs. Meanwhile, the National Association of Realtors, whose members prepare BPOs, said it will look into the issue.
