AVMs, BPOs, Appraisals Help Value Inventory

There are a number of technology tools available to a lender or servicer to determine the value of distressed properties and real estate-owned assets. Choices include automated valuation models, broker price opinions, retro reviews and full-on appraisals. A number of asset managers in today's market are combining an AVM and a BPO in conjunction with other market analysis values.

"You have to have the right tool for the right job," says Griff Straw, president of Chicago-based Solidifi U.S. Inc., a provider of property valuation and collateral risk management services. The technology-driven appraisal management firm does not do any BPOs.

"The question is who are you and what are you trying to accomplish? If you are looking for a broad-brush value, maybe an AVM can do that and they are very inexpensive," he said.

Some REO shops and lenders with REO divisions have a valuation committee with one or two in-house appraisers who will get a BPO to gain access to some of the data that is available on a property similar to what is available through an MLS. "Then it is taken to the committee, it is reviewed and talked about, and they actually come up with what they think their own value is," Mr. Straw tells Mortgage Servicing News.

"On the other hand, you could have a circumstance where Fannie Mae or Freddie Mac has asked you to repurchase a loan or a mortgage insurer is rescinding coverage, and you have to go and justify what was the appraised value as of a given date when the appraiser did it."

Appraisers are licensed and certified; BPOs and AVMs are not. "We have intentionally stayed with the appraisers because we felt that strongly that they are the people who are educated to make the decision about the value. That is far more deep than what a real estate sales agent goes through."

Some AVMs have very limited filters when it comes to bank-owned assets where the database does not do an adequate job of differentiating between an arm's length transaction vs. a distressed sale, according to Mr. Straw. "A computer in many cases can't tell the difference therefore that taints the data unless they do a good job of filtering it."

A BPO is based on opinion, he points out. "You have an opinion and I have an opinion and none of them are the same," he said. "If you are on the asset disposition committee at the bank, it's worth it to wait an extra three days to get an appraisal vs. a broker price opinion if you feel that you will get a better quality opinion of value and the property is more likely to be sold at that value. It really isn't the speed. It's all about the dollars that they are able to recover, that's the bottom line."

The lender or REO manager uses presets in the appraisal ordering process with Solidifi that eliminates appraisers that do not meet certain IQ scores and standards.

"Given the state of the housing market, personally, I don't think this is the time to be scrimping and going with the low-cost solution when you need to get the best quality appraisal that you can," said Mr. Straw.

Many in the industry believe there's a middle ground between some of the automated valuation products, BPOs and appraisals.

Jeremy McCarty is CEO and chief valuation strategist of Valligent, located in Roseville, Calif. Valligent works with servicing companies, lenders and their REO departments to implement a BPO-type replacement product called an APO (appraisal price opinion) done by appraisers instead of Realtors. The trend he sees is that lenders are realizing their use of broker price opinions is not appropriate.

"The process got started back when there weren't a lot of REOs. Lenders would hire a Realtor who would get the listing and find out what it's worth. With the huge influx of these assets that needed to be valued, they continued with that process. But really, the Realtor is not the best person to determine the value on these properties," Mr. McCarty told MSN.

"In a lot of cases, they are not getting the listings. They are just doing the valuation for the lenders. Twenty-three states have indicated using BPOs to determine value is illegal.

"There are a lot of reasons why the BPO is not the best choice. It's a huge decision, a dollar amount decision that is being made and they are relying on an inferior product to do that."

The appraisal industry has not come up with a solution either, adds Mr. McCarty. Typical forms are at least $250-$400 and take a week or two to do.

"Those aren't great solutions either for these situations where they are maybe doing multiple valuations on a given property during a year's time. Lenders and servicers can't afford to be paying $300 or $400 every time to figure out what the value is. We've come up with an answer that's done by appraisers but it's more of a limited scope assignment. You get the quality of an appraisal yet the cost is a lot more reasonable."

Valligent uses diverse tools to evaluate foreclosure rates in the market area and price trends as well as the appraiser's expertise. "It's very difficult to determine the right value for certain properties. Some have been in rehab and are in good shape and others are falling down. It's hard to know what interior your subject property is in," says Mr. McCarty.

"We believe the people with experience, who are licensed and insured to do valuation, is a much better solution than a Realtor that may not have that knowledge or the tools available to them to determine what's going on in that market."

Next in News ►