A BPO (Brokers Price Opinion) is essentially an appraisal by a realtor. The difference is an appraiser is a licensed professional who does property evaluations using systemized standards that have been pre-approved by his professional association or state standards. These property evaluations take some time and in the final analysis are an educated but subjective guess of the property’s full market value in a normal market. Appraisals should vary from appraiser to appraiser by 5% +/-, BPOs can vary from realtor to realtor by 10% – 25%.
The BPO is derived by standards set by lenders who use realtors for the evaluations because they want to save money instead of using an appraiser. An appraisal of a single family home can range from $250 to $500 while a BPO can range from $35 to $75 depending on the lenders. Often a lender will get two BPOs and still save money. BPOs can and are more easily influenced by investors in a number of ways, some of which are considered illegal.
The most obvious ways that are illegal is to cause damage to the interior of the property before the realtor sees the inside, or as a result of a vandalism that an investor initiates. Interior damage can be the act of knocking holes in the walls or spraying tea stains in the ceilings of different rooms to make it appear there is a roof leak. Both of these strategies are truly bank fraud and California authorities have been bringing criminal charges against investors for years. Other states are following suit and these practices may get price reductions from lenders, but the investors and realtors involved risk jail sentences.
Even more serious is what is known as flopping a property in a short sale transaction. This is where an investor and realtor are in cahoots to essentially price fix the final sale price approved by the seller’s lender. The realtor usually plays with the listing on the MLS (Multiple Listing Service) to make it appear that the offering price that the investor made is the right price. In reality, the correct price could be 15% – 30%+ higher. The benefit to the investor and realtor is a larger profit when the property is sold to an end-buyer and the spread is a profit to the realtor/investor/ team.
Intentionally influencing the BPO in one or more of the above manners, or manipulating the listing on the MLS causes the lender to lose money from the FMV (Fair Market Value) price they should have received. This is unfair business practice and fraud in the eyes of state authorities and the Fed. A guideline to how far you can go with influencing a BPO might be to reverse the positions and put yourself in the lender’s seat. If you were the lender, how would you feel if you knew an investor was pulling some of the above tactics?
In summary, do unto others as you would have them do unto you, might be the best guideline for keeping you out of trouble if you try to influence a BPO. Another great guideline is to fully disclose, in writing, to both the seller’s lender and the buyer’s lender the amount of profit you expect to make. If they approve, in writing, you have a better chance of staying out of trouble. If you get involved in flopping a property you can expect that you may face criminal actions in the future.Immobilienmakler Heidelberg Makler Heidelberg