BPO Basics

Eight Tips for Drafting Better BPOs

Arizona REALTOR® Magazine - March 2010

Broker’s Price Opinions (BPOs) aren’t new. A small group of REALTORS® were doing BPOs long before the market took a tumble. But as more homes moved into the “distressed” category, banks began ordering more and more BPOs to get through the short sale and foreclosure process. “That increased demand for BPOs just as REALTORS® were moving from traditional real estate to the distressed market,” says Michael Ramer, president of the National Association of Broker Price Opinion Professionals. “Now BPO is a part of everyone’s vernacular.”

1. It’s just your opinion.
First and foremost, remember what the O in BPO stands for. The REALTOR® Code of Ethics requires a statement to the effect that your BPO is not an appraisal (see box “Standard of Practice 11-1”). “It’s only a broker’s opinion or agent’s opinion,” says Jerome King, designated broker of Long Realty Company in Tucson. “As long as that is expressed clearly in the report, you are effectively managing your risk.”

NOTE: Not all states allow real estate licensees to charge a fee for a BPO. Arizona’s law on this issue was clarified in July 2007. The legislature removed the words “for the purposes of prospective listing or sale” from A.R.S. 32-3602 (1). The statute now exempts from the appraisal licensing requirement: “[a] real estate broker or salesperson who is licensed in this state and who, when acting as such, gives an opinion as to the price of real estate if this opinion is not referred to as an appraisal.”

Next, be sure that the opinion is yours. That means you, as the licensee, need to be the one preparing it. “There are BPO agents right now that are using assistants and clerical help,” reports Shivani Dallas with RE/MAX Infinity in Chandler. “A BPO should come from a licensed REALTOR® who can evaluate comps appropriately.”

“A BPO is a marriage of art and science,” says Ramer. “You have to pull good comps, go through them, adjust the comparables. That’s the science. The art comes in at the end when you apply your gut to it. Is that a good price?”

2. Assume your audience knows nothing.
The asset manager or review specialist who looks over your BPO is likely not in Arizona, doesn’t know what DOM means and has never experienced a monsoon. You need to describe the property clearly and in plain language. “Try to tell a story about the property,” advises Frank Dickens with RE/MAX Achievers in Phoenix. “Much like we describe properties in MLS for the public to view, we want to assume the reviewer has no idea about the property, surrounding neighborhoods, regional conditions and the property condition.”

For example, instead of saying “floor plans in the subject area vary,” you might explain that the developer provided floor plans ranging from 1400-2800 square feet and that the 1800 square feet model had a higher than average rate of sales, suggests Dickens. “This will indicate to the asset manager, if their floor plan is 2800 square feet, they may need to consider aggressive marketing and lower than average pricing. Alternatively, if the floor plan is 1400 square feet, they may be able to enhance pricing in hopes of a better return.”

3. Be better than the next.
There are plenty of folks willing to take on BPO work at the moment. If you want to become a go-to provider, take the time to do a good job. “The minimum time it should take is two hours, and sometimes it takes five and six hours—if you do them right,” says Michael Rose with Coldwell Banker Residential Brokerage in Scottsdale, who has a significant REO practice.

Use the format the lender or valuation company requires, read the instructions carefully and follow the rules to a tee. Most provide detailed specifications for comparable location, lot size, square footage and so forth. If your adjustments are beyond the suggested limits, explain why.

And be early. “Early is on time, on time is late,” says Ramer. “Turn-around time is a big buzz in this industry.” If you are going to be late, communicate that as quickly as you can—but don’t expect sympathy.

4. Go above and beyond.
“While some asset companies limit the number of photos, most don’t,” says Dickens. “The more documentation you can provide with your story about the property, the more your BPO will shine.” He also provides additional MLS statistics to better illustrate market conditions, notes if the property will sell with government-insured financing, flags potentially conflicting information (i.e. if a room addition has affected square footage) and so on.

5. Know your market.
When Rose’s wife moved from commercial real estate to residential, he put her to work on BPOs because he felt it was an excellent way to gain an understanding of the market. “I think every single agent that’s out there should know how to do BPOs because it forces you to do due diligence,” he says. Whether you are looking to secure a listing client or counsel a buyer, the BPO process allows you to understand the property in a way an ordinary CMA cannot.

You can’t be an expert everywhere. When offering their services to a valuation company, “some real estate agents will try to get a big service area,” Ramer says. “But if you take too big of a service area, you may be selling yourself short in terms of knowing your market area.” Stick to what you know—and get to know it even better through the BPO process.

6. If you’re new, get help.
The BPO industry has a low tolerance for error. “If you miss a task, if you’re a day late, there’s a black mark,” says Rose. “You only need three of those black marks, and you don’t get any more work.” Consequently, it isn’t easy to learn on the job.

If you’re new to the process, seek out an experienced agent to mentor you. Rose did an exercise with four new agents. He provided a property address and asked everyone to do a BPO. “All five of us did it, and the price variation was over $100,000 on some of them,” he says. Try the exercise and compare your choices with those of your mentor to see where you might improve.

Another good starting point for the beginner BPO writer is NABPOP’s standards (“musts”) and guidelines (“best practices”) developed with lenders’ quality-control departments, valuation companies and on-the-street agents. NABPOP also offers a certification education program.

7. Remember: This isn’t a listing.
Be careful that you don’t fall into “listing” language as you write the BPO. You are not selling this house on the MLS. “You are providing a no-kidding assessment of what the house is,” says Ramer. “It’s not ‘beautiful, airy foyer.’ They want ‘shingle damage.’” Be clear, concise and factual.

8. BPOs matter.
Remember that a BPO is not simply an extra source of income. It can affect a homeowner and the marketplace. “If the agent turns in that piece of paper that says the listing agent priced it too low, the bank is going to ask the buyer to come up with more or the homeowner will go to foreclosure in this market,” explains Desiree Montgomery, an agent with Realty Executives in Phoenix who serves on the Arizona Department of Real Estate’s Short Sales Task Force and the Arizona Treasurer’s Short Sale Round Table. “A homeowner shouldn’t go to foreclosure for an opinion.”

“People don’t realize that banks are making decisions on these,” echoes Ramer. “And liquidity of credit is based on how fast they can make decisions.” However, he emphasizes that there are checks and balances in the system. Often, banks get multiple BPOs and other valuations done. “In most cases, where there’s financing, there’s going to be an appraisal anyway,” says Martha Appel, designated broker at Coldwell Banker Residential Brokerage in Scottsdale.

A side note: If you have a short sale listing and receive a BPO that comes in very differently than you feel it should have, you can contest it. “The bank will find a third-party BPO preparer to go out and re-do it,” reports Dallas. “Banks are opening their eyes to the fact [that some are flawed].”

Is BPO Work Right for You?

“As a broker and manager, I would not want to see one of my agents making a living doing this,” says King. “They should be out selling real estate.” That said, BPOs can be a valuable tool in your REALTOR® tool box. They can teach you new things about your marketplace, how you suggest listing prices and how you review third-party valuations.

If you are going to be engaged in BPOs, be sure to talk with your broker about BPO questions you may have. And remember, BPO fees are earned from conducting real estate activities, so all payments should be made directly to your broker. Per A.R.S. 32-2154 (7) (10), failure to have payments go through your broker can be grounds for denial, suspension or revocation of your license.

Finally, be sure that you have realistic expectations for BPO work. They don’t pay much, often as little as $45. And they aren’t a guaranteed “in” for REO business. “Three years ago, we were told, ‘If you do BPOs, they’ll get you a listing’ - which is not true,” says Rose. “It’s not what you know. It’s who you know, like anything else.”