Valuing REOs with BPOs: It's all about getting good comps
REO real estate brokers and agents should focus on choosing appropriate comps when preparing broker price opinions for servicers and should explain any anomalies, panelists at HousingWire's REO Expo said. "If you start out with bad comps, it's garbage in and garbage out," said Jeff Del Rey, senior director at PCV Murcor, while speaking about balancing REO valuations in today's volatile real estate market. "In BPOs, the most important rule is to explain, explain, explain," he said. Real estate agents will raise a red flag with their clients, for example, if they submit incomplete listing history for last 12 months for the subject property or the comps. A property listed at $150,000 six months ago that is now recommended for listing at $175,000 would raise a red flag. While there may be a legitimate reason for the higher recommended price, such things should be explained in the BPO. Likewise, if house prices are declining, for example, by 1% per month and the agent is using a 4-month-old comparable properties — he or she needs to make a valuation adjustment for that, Del Rey said. Duane Andrews, CEO and co-founder of Clear Capital, said 34% of properties nationwide are bank-owned properties. The level of REO saturation can have an effect on the pricing in a particular neighborhood. If there is a low saturation, the discount on REOs may be small. A lot of REOs in poor condition likely will result in a fairly high discount, but the point is that the discount applied to an REO is unique to the neighborhood that it is in, Andrews said. Mary Jacque Thompson, senior vice president of operations at eMortgage Logic, said lenders don't want their REOs to be undervalued and advised agents to be sure they are using properties that are similar in age and in style to the subject house for their price comparisons. "In Texas, everyone has pools. If your subject property has a pool, then your comps should have a pool or you should be making adjustments for that," she said. If an agent needs to go outside the immediate neighborhood to find a comparable property, that should be explained in the BPO report, she said. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.