As you have read, most BPOs and appraisals are ordered by banks/lending institutions. That is not where the bias resides.
The bias appears in the purpose for which these tools are used.
The appraisal is for granting a mortgage to a home buyer.
The BPO is to assess a value to establish a selling price. (A preliminary BPO and an interior BPO. The second is the most important)
As you can imagine a lender is better served by a low appraisial when granting a mortgage.
As you can imagine a bank is better served with a high BPO when establishing and negotiating a selling price.
Banks can dictate in the BPO or appraisal order what comparables can be used, where the comparables may be located, time frame of sale and when the order must be completed.
Now, what is not obvious is each of these, BPO and appraisal, are scored by the ordering bank. A low scored report can result in the BPO agent or appraiser not receiving an order in that area for a certain period of time or be black balled forever. So, is there a bias? I don't know.
But to get the outcome you want you need to stay on top of ALL of these events as well as all the other wagons involved in a successful real estate transaction.
An appraisal is conducted by an appraiser. A licensed appraiser will visit your home and give at least 3 recent sales of homes in your area and an evaluation based on condition and the most recent sales in the area. An appraiser notes market conditions in their report and the report is slightly more scientific in nature. Both reports are based on the agent or appraisers opinion and their view of the current market conditions.
In the case of a BPO the agent may or may not look at the interior of your home, whereas an appraiser will definitely seek entry in order to do a full evaluation.
In the end, it's what a buyer and seller are willing to make a deal at.
Look at all the homes that are "underwater". Everyone of those sales and purchases had an appraisal.
Appraisals are based on "recent" sales. So if you are buying in an "up" market, the last 3 sales in your immediate area of course will show "high" prices. Little if any is given to history of pricing over a 2, 4, 6 year period.
Are millions of people moving in? Are these "higher" prices being driven by owner occupied purchases or investor grabs.
Ever have an appraiser ask you "so what do you need it to be at.."
The most recent sales are REALLY a misleading indicator.
What caused the real problem:
1. Free money. So people had money to buy regardless of "real" value.
2. The National Association of Realtors who jumped on the "prices always go up" bandwagon.
Also, many lenders now have to pay attention to the appraisals. Local banks that survived the fall took a real look at any loans they held onto, then many joined in and simply sold off the loans and no longer had local obligation.
Real bankers knew better.
May I ask why you are inquiring? Are you purchasing a home or going through a Short Sale or Foreclosure?
If it is a Short Sale or Foreclosure, you might want to work with a Certified Distressed Property Specialist (CDPE). They may be able to do a Short Sale instead of a Foreclosure which will be better for you and the Bank. Some Banks are even giving the Seller money for completing a Short Sale.
Contact me if I can assist.
Dottie Cordwell, Broker, REALTOR
GREEN, e-Pro, ABR, SFR, CDPE, CIAS
Advance Realty Professionals, Inc.
A bpo is a broker price opinion and it's based on what an agent feels a property is worth to a buyer in the current market. An appraisal determines value based on recent sales information and indicates what a property is worth for lending purposes this is done by an appraiser.
All the best,
Advance Realty Timonium
A BPO is not the same as an appraisal. A BPO is called a Broker Priced Opinion and that is exactly what it is, an opinion based on experience of what homes are selling for by agents, or a broker. BPO's are less costly than an appraisal and it is used by banks and investors to adjust their idea of what value are. An appraisal is from a certified appraiser who is licensed and practices in the state he is certified in. Both will usually be requested by a lender or owner of the note on a short sale. Both parties are independent and none are biased.
The BPO is ordered by a third party usually and Brokers or licensed agents who are hired as vendors and are given the appointment to fill a BPO request. The agent has to perform professionally and without biased and within a specified time frame.
An appraisal is usually ordered by a third party as well and is more detailed than a BPO.
The reality of value is simplistic and defined appropriately; what a willing and able buyer is willing to pay for and a willing and able seller will accept for his property. Value is really what a buyer and seller agree to in terms of a sale. Thatâ€™s it!
All agents have an ethical duty. I hope this helps.
Best Personal Regards,
An Appraisal is a much more involved process to determine the value of the property. The value of the home may be more or less than the price. The appraiser takes in to account the construction, the intended and potential use of the property, and many other factors in coming up with the value for the property.
It is a useful oversimplification to think of the BPO as a tool to set a price to ask for a property (or even make an offer with), and the appraisal as the tool to ensure that you don't pay more than the property is worth..
An appraisal is ordered through the purchaser's lender in order to determine a fair market value of any home. Lenders will not loan more than the house is worth to any buyer.
During a short sale process, the BPO is typically ordered first and if a buyer needs to finance their purchase than an appraisal will be ordered next. This appraisal is for the purchaser and the lending institute that plans on financing the purchase.
Companies hire a real estate broker to prepare an opinion of value. The representative of the broker, generally a real estate agent, compares three similar properties that have recently sold to the subject property and adjusts up or down for differences. The final result in an opinion of market value.
Broker price opinions are sometimes controversial, especially if the agent preparing the BPO has little experience or knowledge about the neighborhood. But BPOs typically cost less than a full-blown appraisal.