Real Estate Agents Help to Kill Property Values

May 30, 2009

As if housing values weren’t tanking enough on their own, now comes word that real estate agents are helping to sink them even further.  With lenders trying to unload their growing inventory of foreclosed properties, they’re turning to real estate agents for appraisals, insead of traditional, licensed appraisers.  The result is agents low balling values to make quick sales and homeowners getting the short end with artificially low property values.  Read Tampa Tribune Reporter Shannon Behnken’s excellent report exposing the practice below:

Broker price options open controversy:

By SHANNON BEHNKEN; Tampa Tribune;

Lenders looking to quickly unload distressed properties are increasingly cutting costs by hiring real estate agents instead of licensed appraisers to value property.

The agents, who often have a stake in selling the property, give low-ball price estimates that artificially push down values, some industry experts say.

Broker price opinions, or BPOs, are performed by real estate agents who, unlike licensed appraisers, have no regulatory oversight of their valuations. BPOs are attractive for lenders because they cost between $40 and $65, compared with about $350 for an appraisal. Critics say the agents are swayed by a desire to collect a commission for selling the home later.

“If Florida was to require all lenders to use appraisals instead of BPOs, these extravagant decreases we’re seeing would stop overnight,” said David Teacher of Brandon-based Superior Residential Appraisals. “Some neighborhoods are back to 1997 prices because of this, and it’s absurd.”

Making ends meet

Amid the greatest housing downturn since the Great Depression, some real estate agents see BPOs as an opportunity to make ends meet, or as a logical extension of their business. Those who defend them say many agents are in a better position to come up with accurate price estimates because they know what will sell.

“To say that real estate licensees can’t give a price on a property just doesn’t make sense to me,” said Principal Real Estate & Auction’s Lisa Rose-Mann, who conducts BPOs regularly. Mann said she never takes a listing as a result of her BPO work.

Using BPOs only to value houses is illegal in 23 states but is permitted in Florida. Some groups, such as the National Community Reinvestment Coalition, want other states to outlaw BPOs as appraisal substitutes in distressed sales.

“We work with consumers around the country and have found this to be a big problem,” said David Berenbaum, executive vice president of the reinvestment coalition. He recently testified in front of Congress that price drops are more prevalent because of BPOs.

The Tampa-St. Petersburg-Clearwater metro area saw the median sales price fall to $135,200 in April.

Prices are down 23 percent from $176,200 in April 2008, according to the Florida Association of Realtors. At the peak of the local market in June 2006, the median sales price was $239,600.

The decrease is largely driven by distressed sales. Because of that, home prices would continue to fall, even with licensed appraisers doing all the valuations, but Teacher, the appraiser, said the prices wouldn’t fall as much.

“I saw a home that likely would have appraised at around $115,000,” Teacher said. “The BPO came in at $65,000, and the bank took $55,000.”

Real estate agents are more likely to come up with a lower estimate because it would be easier to sell the home, said Brad Monroe, a real estate agent and former president of the Greater Tampa Association of Realtors.

Monroe does not offer BPOs for a fee but performs them for lenders when he sells bank-owned homes. He said licensed appraisers should be used most of the time.

“The lender dangles the carrot that when the listing comes open, you’ll get it,” he said. “There’s not much of an incentive to get an accurate value.”

Industry experts say BPOs are used in the majority of current sales because they are most often used in distressed property sales. Teacher says he thinks as much as 90 percent of sales in some Bay area neighborhoods are based on BPOs.

Broker price opinions aren’t new, but the business has blossomed as foreclosures have spiked. Educational Web sites target real estate agents and say the economic downturn is the perfect time to concentrate on churning out BPOs. One touts that BPOs are the “the easiest and fastest way to make big money in 2009.”

Some questions raised

Regulators in some states have raised questions about the recent increase in the use of BPOs. No such questions have been raised by the Florida Department of Business and Professional Regulation, which oversees real estate agents, said spokeswoman Alexis Lambert.

Before agreeing to lend money on a sale, lenders typically order a valuation from a licensed appraiser.

When lenders approve a short sale – meaning they agree to allow a home to sell for less than the mortgage to avoid foreclosure – they often turn to BPOs to make sure they’re getting a fair price. BPOs are also used most often when lenders need to figure out what price to list a foreclosed home for sale.

When the homes are then sold at “fire-sale prices,” the rest of the neighborhood suffers, said Bill Garber of the Washington-based Appraisal Institute. Garber is in charge of the group’s government relations.

“This ultimately brings down values everywhere, and that should concern us all.”

Jack Rodriguez, president of the Greater Tampa Association of Realtors, said he understands the controversy but that lenders know what they’re getting: an opinion. Also, as long as BPOs are legal, he said, real estate agents and lenders will likely use them.

“I can see both sides,” he said. “I see it has a business decision, and a lot of Realtors know how to do this well.”