BPO demand creates opportunity, but at a risk
Thursday, October 13, 2011
By Royce Vanderpool
Real-estate owned (REO) asset managers and lenders are now relying heavily on broker price opinions (BPOs) — produced by real estate offices — to place a value on their holdings and to set asking prices for both REO and short-sale properties.
From a risk management perspective BPOs are a time bomb of potential liability, whereas appraisals are safe and carry no potential liability for brokers. Brokers could be held liable for the accuracy and sufficiency of their BPOs to the same extent that financial institutions and mortgage companies are held liable for "robo-signing.” This is the kind of liability that can cost a broker his or her business.
If brokers are not aware that their agents are writing BPOs, or if brokers are not reviewing and approving BPOs before they are submitted, or if brokers are hiring untrained and unlicensed people to research and write BPOs, then the question arises as to the sufficiency of the broker’s E&O policy.
A popular blogger site recently asked REALTORS® across America whether the BPO is an all-healing remedy for the current distressed property ailments or serves only as a cheaper alternative to the more expensive appraisal.
While many real estate professionals believe in their personal ability to price property in their immediate market area as close to market price as any appraiser can, an overwhelming percentage of blog respondents thought that the current BPO process needs improvement across multiple fronts.
Fortunately, the National Association of REALTORS® has recognized the need for education and uniformity in the BPO process and has responded by creating a new program that teaches agents how to properly fill out a BPO and leads to Broker Price Opinion Resources (BPOR) certification. This class was first offered at ORRA in October and will be offered again in 2012 (check for postings on www.orlrealtor.com). The course aims to provide REALTORS® with knowledge and skills to reduce risk and increase opportunities to create professional and accurate BPOs by teaching how to:
- Prepare accurate and professional BPOs;
- Evaluate market valuation tools for the most productive preparation of BPOs; and
- Identify and weigh all significant factors influencing the creation of a useful valuation.
Bloggers were also quick to point out BPO trouble spots; concerns that risk reducing-minded REALTORS® should be aware of:
*By comparison to the appraisal system, the BPO system requires no formal licensing process, is not regulated by federal legislation, and remains largely unregulated by the individual states.
*Until recently, formal training on how to accurately complete a BPO has not been readily available. While there are a few specialized programs offered through individual asset managers and lenders, these training programs are vendor specific and are often tied to user fees. These fees can be required in order to join the REO site, become eligible to perform BPOs, and eventually obtaining listings.
*There is an apparent conflict of interest created by the relationship between the real estate professional and the REO manager/owner. Responders cite multiple instances where asset managers expect to pay little or nothing to have BPOs performed by real estate agents. Agents are often willing to perform BPOs in exchange for the promise of future listings. This type of conflict is further exacerbated when REO managers, after reviewing a completed BPO, feel comfortable requesting a BPO be changed by the writer because it doesn’t compare favorably to other BPOs on file.
*Unlike appraisal documents, which must be certified by individual appraisers, BPOs do not require a certification or a signature on the valuation form (neither of the person performing the BPO nor from his or her broker). Blog responders commented that BPOs are rarely reviewed by brokers prior to submission, and they expressed concern about the potential liability of agents who perform BPO work without their brokers’ awareness.
Regardless of these concerns, the real estate landscape is changing and BPOS are in high demand. They do offer a whole new revenue opportunity and a way to stand out in the market. And while it may be great to take advantage of this growing trend, be sure to remain on alert for the potential for liability.
Royce Vanderpool, Devan Realty & Development Corp., is a vice chair of the ORRA Risk Management Subcommittee. He can be reached at firstname.lastname@example.org.