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RISMEDIA, July 12, 2011—Executives within the default Industry are required to make decisions on a variety of dispositions that vary from loss mitigation to REO pricing strategies. The Broker Pricing Opinion (BPO) is an integral component of the decision making process, and as the industry has grown exponentially over the past five years, the need for greater accountability has grown with it.

Real estate agents that provide BPOs have been asked to provide that accountability with a level of detail not previously asked for, and document their valuations with transparent, non-biased reporting reflective of their local market expertise.

The culmination of this request for greater detail has seen the BPO evolve from a one-page summary of current sales and listings, into a two-page document requiring the agent to detail and comment on those forces that affect marketability. Furthermore, every BPO is now reviewed by an audit staff to ensure that the BPO meets client specified requirements.

One of the most frequently asked questions I hear from the agents who perform BPOs is, “why we are asked for so many revisions on the BPOs we complete?” The answer is as complex as the current real estate market itself, and highlights the major transition the BPO has recently undergone.

In years past, default clients placed little to no emphasis on market analysis, subject sales history, and bracketing ranges for the comparables selected. Today however, these areas are now required, and most of the revisions agents are now requested to make are related to these expanded client requirements. These additional details allow decision makers in the default industry to gain a more detailed snapshot of the subject improvements, the surrounding market environment, and the comparables provided.

In an effort to help agents avoid revisiting their BPOs, I will highlight four of the most frequently requested revisions auditors ask for. Hopefully, this will help you in your comparable search and remind you to provide necessary comments when client requirements can’t be met.

The most common request is to have the agent replace comparables that do not reflect the subject improvements and in turn do not support the agent’s value estimate. This includes comps that lack similar lot size, age, and gross living area. The client is looking for a high degree of conformity between the comparables provided, often asking, “does each comp look like a market alternative to the subject improvements?” When the market does not allow for similar appeal properties, and comparables are provided that differ substantially from the subject in lot size, age and G.L.A., the agent should comment as to the lack of conforming comparables available and detail the rationale for those comparables provided.

In the past, as long as one or two comparables closely reflected the subject improvements and the indicated value centers on those comps, the total range of value did not receive critical review. However, clients are now requesting that not only should there be a high degree of conformity between comparables, but the range of values should be closely related as well.

Default clients want to see a tight range in value from the low sale to the high sale provided; a similar range is required from the listings. Auditors are increasingly requesting agents to replace comps so that a 30% spread from low to high is reflected. When a lack of comparables or special circumstances prevent this from occurring (super-adequacy on the part of the subject improvements) then the agent should comment.

Auditor requests for comparables within a closer proximity to the subject are frequently cited as well. Most clients want to see comparables within a one-mile radius of the subject in suburban communities. When agents leave the immediate neighborhood for comparables, they have effectively ignored the primary market influences that may or may not be present in a neighboring community. It should be noted that auditors will rely on a number of sources to determine if closer sales/listings were available and not provided. If all comparables are located beyond one mile, the agent needs to provide a comment that the agent attempted to locate proximate similar properties but none were available, and the comparables selected were similar in appeal from similar demand neighborhoods.

Finally, dated sales that closed beyond 6 months are another request that auditors frequently ask agents to revise. In many communities throughout the country, a 10 month old sale is no longer reflective of the current market. Auditors will again rely on sources to determine if more recent sales were available, and in most instances, having the agent expand the search parameters outside the addition or subdivision are preferred. Rural and complex properties generally require sales beyond the 6 month threshold as there are fewer comparables of similar appeal selected from a greater expanded distance. Whenever dated sales are required, the agent needs to inform the auditor/client why it was necessary to include them.

As noted, in every instance where the BPO comparables provided differ from the client instructions, comments are required. While many of the default client instructions seem to have little impact on an agent’s ability to accurately provide a reliable disposition value, they are required to provide clarity when conformity is not possible. The first thing I was taught as an appraiser was to assume the eventual reader of my report knows nothing of the market I work in, and I truly believe this is an important thing to consider whenever writing a BPO. Each client you perform a BPO for will need your narrative insight so that you may enlighten them as to the unique challenges of your market and the values you provide, and by double checking all of your BPOs and ensuring you have covered the common mistakes pointed out here, you can quickly become more confident your BPO will be accepted on the first submission.

Brad Froelich is the Vice President of Valuations at USRES, an asset management company that provides core solutions through REO dispositions, property valuations and a suite of enterprise technology tools.

For more information, visit

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