When stopped at a red light on a busy multi-lane street, does a real car aficionado wonder if the surrounding car’s performance actually live up to their appearances? It’s often hard to answer this question without completing a test drive and looking under the hood for oneself.
Similarly, while a broker price opinion (BPO) report may, at first, appear impressive, without a real understanding of the processes, data analytics, and validations supporting the broker’s or agent’s judgment-based price opinion, first impressions alone could lead to a less than optimum asset-related decision.
Millions of BPOs are produced annually in the United States, alongside other useful valuation-related services, including appraisals, evaluations and automated valuation models (AVMs). Mortgage originators and servicing processers sought them to provide additional depth on a subject property, as a value proposition, and to assist in making well-supported mortgage collateral decisions.
Conscientious consumers of BPO services understand there are significant differences in BPOs available in the market today. All BPO providers should employ a powerful and efficient motor in their BPOs with the following specifications:
- Effective management of contracted experienced individual brokers and agents to ensure the best analysis possible.
- Validated accuracy of property information, including closed sale, active listing, Multiple Listing Service, as well as historical and trending data, to provide reliable and credible recommended prices, based on reasonable market exposure.
- Complexity assessment of each individual property on which a BPO is performed in order to understand the scope of work necessary to provide a credible BPO result.
- Clear view of market velocity, as pertaining to each subject property. By statistically validating estimated listing exposure and marketing timelines, a better supported analysis can be achieved.
What part does a BPO play in due diligence?
Real estate brokers and agents provide a unique perspective on market price. These licensed participants describe real property being sold, expose properties to the marketplace, bring buyers and sellers together, participate in price negotiations and facilitate the closure of transactions. These professionals generate MLS information, including property descriptions and lists of characteristics and dwelling measurements that brokers, agents, appraisers, tax assessment officials, mortgage lenders, buyers, sellers and other key market participants rely upon. They understand real estate marketability, cost and value from a rubber-meeting-the-road perspective.
Appraisers contact brokers and agents to verify all aspects of properties being used for comparable purposes, including market reactions, buyer and seller issues, potential discount adjustments in an appraisal needed to accelerated sale price estimates, potential obsolescence adjustments, and terms of a transaction. BPOs take into consideration the current local market velocity based on unique perspectives of licensed brokers and agents. Accurate analysis using sound analytical principles and techniques is imperative.
What can the mortgage service provider do to augment the validity and credibility of a BPO?
Unlike commodities or precious metals, there is no definitive index or authoritative body that can determine price estimates or values for real estate. Simply put, the identification of applicable data and competent analysis provide the only meaningful indications of market value or price of a specific property. High quality and complete data availability and use, automated validation processes, and quality management and controls must be integrated into the BPO report process.
Excluding any of these important components in the development of a BPO often result in BPOs that look impressive on the surface, but whose performance falls short. The key to identifying a high-quality BPO is found “under the hood”, or in other words, by what servicer processes, available data and analytics are employed to support the broker or agents in reaching consistent, validated and credible market price opinions.
Who is completing your BPO?
Well-running cars need consistent high quality maintenance. Likewise, if the goal for users of BPO services is to obtain high quality analyses from qualified and experienced real estate brokers and agents, panel management must maintain a focus on panel member recruiting, screening, training, performance evaluation and best performer retention. Success is defined by effectively matching orders to the most qualified local, independent analyst for each BPO assignment. Consider the following:
- Verification and active monitoring of panel-member qualifications must be a standardized and regularly reviewed process.
- Licensed brokers and agents who complete BPOs must be engaged in the market by actively and successfully listing and selling homes in their market areas. Otherwise, a skewed and inaccurate price opinion may be reflected in the reports due to a lack of experience and knowledge.
- Some real estate companies specialize in BPO completion, at the expense of listing and selling properties. Without ongoing, real-world real estate sales and listing experience, the unique perspective offered by a true market participant is easily lost. Each broker and agent panelist should be receiving active, updated, and relevant training offered by the BPO provider in order to ensure ever-changing guidelines are understood and met.
- Each agent and broker needs constructive feedback to understand their performance level compared to other panel members, and how that performance is viewed by the BPO user and processing quality assessment and control teams.
- Poorly performing analysts need to be removed from the panel.
Data is king
Just as a car cannot move under its own power without a transmission, a BPO provider can only power a high quality price conclusion using a robust database. By today’s standards, a database with 20, 40, or even 70 percent property coverage is inadequate to produce a complete and accurate BPO. Consistently high performance requires competently developed and employed data-based analytics and processes.
Property data is required in all stages of BPO development. Data is used to create analytical tools that validate broker or agent opinions and can be used as support within operational processes. This information provides the basis to validate reported descriptions and characteristics of the subject property, as well as those used as comparable closed sales and active listings. This enables the provider to understand the complexity of the assignment, based on data-derived intelligence. The accuracy of property attributes and market information will lead to higher confidence and satisfaction by end users.
Data-enhanced automated processes can also identify and highlight unsupported judgment-based adjustments to be reviewed and corrected prior to report delivery.
Is the market changing?
Although growing in many areas over the past few years, the time on market required for each property to sell is constantly changing. Real estate brokers, agents and appraisers have always been able to “feel” changes occurring, but a statistically derived validation of these changes must be an integral part in the development of any market value or price opinion.
Real estate market velocity refers to the direction and speed of market changes that, in many cases, can be tracked and reported at the neighborhood level. Strong validated databases are also the tools used in developing reliable market velocity measurements to support credible BPOs.
So, the question remains: How do you distinguish between a BPO that only looks like a high-performance vehicle and one that actually performs that well? With vendor due diligence, it is relatively simple to ascertain the performance you can expect from your BPO provider. Ask questions, kick the tires, and look under the hood. You may be shocked to see a squirrel running on a flywheel that drives some BPO engines.
A quality BPO provider will welcome your office visits and be fully prepared to meet the highest standards of audit, process and regulatory scrutiny. By identifying a high-quality BPO provider, you can enjoy peace of mind. You’ll know the motor driving your BPO servicing is a finely-tuned engine that ensures exceptional and consistent performance.