Greenville: Appraisal or Broker Price Opinion?

Some of the public have become confused by the recent offerings on the Internet. Broker Price Opinions (BPOs) are a relatively new "product" but they are not subtitutes for real property appraisals. It is important for the public to understand the difference. BPOs are created by real estate agents to price listings for sale. While they have been used by decision-makers in the lending process, you have to remember that some of them are the same lender's who have tanked the real estate markets more than once. In my opinion there's not a lot of thought that goes on behind some of those expensive doors. The broker price opinions (BPOs) are based on a cursory review of sales, there are no standards established regarding BPO's and they should not be relied upon with regard to market value. Importantly, there is no regulation of BPO's, you may get some great arguments about how great they are but when anyone can produce one and there is no responsiblity for its accuracy you have to step back and ask "Is this a reliable tool or just a piece of paper that saves the bank money and pretends to be something its not?"

As a certified general (licensed) appraiser in Greenville, North Carolina, I am often asked by people if a Broker Price Opinion can be prepared for their banker, for bankruptcy court, for a divorce settlement or for some other use. In many instances a BPO is an entirely inappropriate for a use. It is understandable that consumers do not want to pay for an appraisal report if they think they can get an equivalent product from a broker for free or for a much lower fee. The fact is that you get what you pay for, and a BPO isn't much. You might as well go online and use one of the automated valuation models (AVM's) that display a modeled value from recent data. If you have used one of these sources and watched the value of your home bounce around, at times 20% or 30% over or under its actual value, you will appreciate how bad and how dangerous BPO's are.

Broker Price Opinions are not equivalent to appraisal reports and they cannot legally conclude market value. Most of the BPO's that I have seen, even those prepared to procure commercial listings, are poor substitutes for summary appraisal reports. Typically an agent displays what he believes to be similar property sales to those of the potential listing in an attempt to assist the seller with a price conclusion. Do they consider if the property is in a designated flood area? No. Do BPO's consider income? Some do but they don't derive an appropriate capitalization rate. Do they consider reproduction cost and depreciation? No. The fact is they are often 5 to 10 page reports on properties sometimes worth millions of dollars that my minimal reports require 90 to 100 pages to describe and analyze. They are definitely not substitutes for an appraisal report.

A Broker Price Opinion, sometimes called a competitive market analysis (CMA) by agents, was "developed by the real estate industry to determine a competitive listing price." It is important for consumers to understand that Broker Price Opinions (BPO's) are not appraisal reports and they were never created for the valuation of real properties in North Carolina and elsewhere. Pricing a property is important, you have to get into the "ball park" or you could really do harm to a seller when you list their property. But many Greenville properties are not sold for their asking price, and value has to do with actual sales not with what people are asking. If you look around in a place like Las Vegas you can find areas where the asking price of properties is well above what anything has sold for in some time. Appraisals are based on actual sales, BPO's are based on asking prices, that should be enough information for most people.