Chicago Appraisal Blog

Although commonly recognized as a valuable tool, BPO's have their limitations.  First and foremost, reas estate salespeople and brokers are not held to the higher standard of valuation law that we appraiser's must comply with.  I know, I am also a licensed salesperson.  Property valuation is very dynamic, especially now with pockets of our market declining. 

The same area of a neighborhood may have declining multi unit value trends, but increasing single family value trends.  Even more specifically, 2-bedroom homes may be declining, while 3 or 4 bedroom homes may be stable or even increasing.  It is inappropriate to look at only single family homes as a whole, which is often the case in BPO reports.  Further, if a real estate salesperson or broker is vastly inaccurate in their BPO report, they do not share the risk of losing a valuation license.  They are not licensed in property valuation.

How can you be sure you are getting accurate information?  ORDER THE APPRAISAL.  Appraisers value property for a living, while salespeople and brokers facilitate the sales.  Yes, these two are intertwined but the laws governing the licenses are very different.  A broker or salesperson can accept an assignment in a neighborhood they do not know, resulting in an increased risk for errors.  An appraiser can not accept an assignment unless they are competent, not only in the neighborhood, but in the property type as well. 

It has been my experience that asset managers reviewing short sale files will often not accept an appraisal as a refutation of a BPO.  This is tantamount to refusing to talk the actual attorney, and demanding the report from the paralegal.  The fields are interelated, but have different duties with different areas of expertise. 

If you would not an appraiser to sell your house, don't have an sales person do a BPO. 

CASE STUDY:  (The address has been changed due to protect the identity of the parties involved)

A high end townhome in Chicago went to short sale.  A buyer came in that was willing to pay cash, close quickly, and wait for the bank to respond.  The bank ordered a BPO.  The real estate salesperson said the property was 45% larger than it actually was, thus inflating the value by 30%.  (We're talking about hundreds of thousands of dollars....)  They obtained their information from a builder's listing a decade ago, when the advertising rules were different, and seller's could include garages, decks, patio's in their square footage.  The bank rejected the offer because they relied upon the salesperson's estimate of value.  An appraiser was hired by the selling party to provide a more accurate report to the bank.  The apprasier's report included a sketch, interior pictures, and a detailed analysis.   The bank wouldn't open the file because it wasn't a BPO.

RESULT:  The property went to auction and didn't sell.  The property was vacated and not winterized in time.  The pipes within the property burst, and mold developed.  The bank the received 50% of what the cash buyer wanted to buy at the time the short sale was being negotiated.

IF THE ASSET MANAGER HAD CONSIDERED THE APPRAISAL INSTEAD OF THE BPO, THE BANK WOULD HAVE RECOVERED HUNDREDS OF THOUSANDS OF DOLLARS MORE FOR THIS SAME PROPERTY!! 

MY PLEA TO THE ASSET MANAGERS:

Appraisals cost a little bit more, but what's $350.00 when you stand to lose $300,000. more?