BPO Accuracy

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Are BPOs Accurate

BPOs have been used for many years by the lending industry and mortgage servicers.  BPOs have proven to be accurate and reliable.  NABPOP is not claiming BPOs are more accurate than appraisals.  NABPOP is claiming BPOs and appraisals are relatively close in accuracy.  Appraisal organizations often claim BPOs are inaccurate, but BPO accuracy certainly isn’t as bad as appraisal organizations claim them to be.  Based on the continued use of BPOs within the lending industry, we knew that BPOs must be accurate and reliable.  So NABPOP decided to conduct a study.

NABPOP took part in an industry wide study involving multiple valuation companies who perform both BPOs and appraisals in an effort to determine BPO accuracy.  Properties were randomly selected which were sold and had a BPO and an appraisal conducted on the same property.  Side by side comparisons were conducted which compared the BPO and appraisal price/value to the sold price of each property. The individual valuation companies’ results were rolled up to represent an industry sample.  The aggregated studies indicated BPO accuracy was within 2% accuracy of appraisals.

To complete an appraisal, appraisers rely heavily on the sold prices of houses.  The sold prices which appraisers use are prices estimated by brokers and then put to market.  To further the appraisal argument, the broker can continue to change prices until they arrive at a good selling price, but this is not reality.  A broker’s longevity in selling houses is predicated on their ability to get a good list price on their listings.  Brokers who cannot do this do not stay in the real estate industry for very long.

Few will argue brokers can sell houses.  To imply a broker can determine a price which goes to market, but can’t determine a price for a BPO is a stretch.  To discredit a broker/agent in their ability to estimate a price is essentially discrediting the appraisers who rely on the sold prices which were initially determined by the brokers.

Buyers (or lack of) determine and drive any market (including real estate).  To truly know the buyers’ mindset is to truly know the market.  This is especially true in the real estate market.  A seller can be wishful thinking and put any price that they want on a house, but if it isn’t reasonable, nobody will BUY it and the house will stay on the market.  Even in a market which favors sellers (a seller’s market) the overabundance of buyers creates this type of market and the sellers are still responding to the buyers mindset.  In any market, sellers need to know what the buyers are willing to pay and sellers determine the sell price based on that.  So ask yourself, who is going to best know the mindset of real estate buyers?  Brokers and agents.  NABPOP can give you a directory of brokers and agents that spend most of their time with real estate buyers – evaluating, pricing, and advising – giving their opinion.

Furthermore, NABPOP formally trains agents and brokers how to complete accurate and timely BPOs with fundamentally sound valuation techniques.  NABPOP also administers a stringent BPO certification process for performing BPOs.  Additionally, organizations who order the majority of BPOs, BPO and REO companies, have a vetting process which ensures only the best brokers can provide BPOs not to mention that these organizations have a QC process that each BPO submission is subjected to before being returned to the customer.  Brokers are put through the paces to ensure quality and accuracy between the certification process, the vetting process, and QC processes.

BPOs have been used for many years by the lending industry and mortgage servicers.  The industry has developed a self-policing mechanism which ensures quality.  Servicers realize the importance of basing their decisions on reliable information prepared in a professional and thorough manner.  They require that BPOs meet stringent quality assurance metrics before they are accepted.  If BPOs did not prove themselves to be accurate and reliable over time, BPOs would not get ordered.