There are times when you may need a Broker’s Price Opinion. Are you even aware of what exactly a BPO is and is not? Many investors aren’t, and many don’t even realize the many uses of getting a BPO done on your properties, or one’s you’re looking to purchase.
On today’s episode we talk to the owner of Lakeside BPO to better understand the differences between appraisals, Broker’s Price Opinions, CMAs and regular sold comparables.
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Why You Need a Broker’s Price Opinion
On today’s show, we’re going to talk a little bit about Broker’s Price Opinions or what are known as BPOs. Most of you probably know what a BPO is. For those that don’t, it’s really a half-step between getting market comparables on a property and a full-blown appraisal. You might be asking, “Why do I need one? Why do I care?” This is what we’re going to talk about with our guest today. You can see that there are times where it does make sense to get a BPO done. It could be just a check-up on your own property to do some due diligence on a property that you’re looking at or in some situations where you have an appraisal that goes a little wonky comes in low and you need to justify the actual value of a property. This could be true if you’re a buyer or a seller. In today’s show, we’re going to really explore what the BPOs are and what they’re not and when they apply. Believe it or not, there are services out there that will provide this to you on a nationwide basis.
It’s my pleasure to introduce Cameron Gagnon to the show. Cameron is the Founder and Director of Operations at Lakeside BPO. They specialize in Broker Price Opinions and use their advanced proprietary software to efficiently service their client’s requests quickly and accurately. Cameron, welcome to the show.
Thank you very much, Marco. I really appreciate it.
I didn’t want to get too deep into your bio because I want you to explain what you do and how this all came to be. You’re down in Arizona. Is that correct?
That’s right. We’re in Lake Havasu City, Arizona. It’s beautiful and sunny out, great weather.
Cameron, tell us about your business, maybe a little bit of background on you and how you got into this business and why you started this business. Just educate ourselves and then we’ll get into the weeds of what BPOs are and who uses them and why investors would need one and when they would need one. There’s some good stuff we’re going to cover here today.
I’ve been around real estate my whole life. Between family and companies that I’ve been around, I’ve done a lot of real estate stuff. I’ve been in the Broker Price Opinion world for several years now. I was working for a larger company that did the Broker Price Opinion and I was servicing them. At that time, I became really familiar with them and I quality controlled process of them and fulfilling them. It was almost a couple years ago, I started this business, Lakeside BPO, a Broker Price Opinion service, because I saw a need in the industry. The company I was working for before, I really became familiar with it and I was excited about it. I saw that there were a lot of directions that I could go personally to make this a better experience for both clients and vendors and real estate agents helping me out to make it a better deal. There are a lot of integrity issues with these companies, especially since they’re such low dollar amount for the users, the real estate agents and the people fulfilling them that they’re just not always incentive to pay. I decided to get out of that and start my own thing. It’s been a blessing. It’s been great.
You have me curious. Where was the integrity problem? What was it?
With the $600 threshold for 1099 individuals and real estate agents who do the orders, there’s not always incentive to pay them especially for me. It’s like, “If I don’t pay them, no one’s going to come after me.” That’s how a lot of companies are looking at it. I don’t really like that. It’s not my thing to work for people that are doing that. In fact, I can’t think of anyone who pays very quickly or efficiently as a Broker Price Opinion business. That was what really motivated me to get out of there and just start my own thing. I have a great agent network. They all love Lakeside BPO and they want to keep working for me. I’m really happy where we’re at right now.
You’re a nationwide company, which is not true for people like real estate agents and brokers and appraisers who are tied to a local market. Let’s start off by talking about what a BPO is. A lot of people listening to this episode know what a Broker’s Price Opinion is but expand on that. Define it and tell us what it is and what it isn’t.
At the most basic level, a BPO is a Broker’s opinion of the price of a property, whether it’s land only or if it has a dwelling on it. They’re only useful for the residential properties though. There is a commercial application called a BOV but that’s not what we specialize in. The Broker Price Opinion is a Broker’s opinion of value. When I say broker, I mean a real estate agent, a sales person, a broker, or an appraiser acting as an agent or broker. That would be the people that would be giving their opinion.
How does that compare to an appraisal? I’ve seen BPOs and without all the extra paperwork on the front and the back, they seem to be essentially the same thing. Compare and contrast an appraisal to a BPO.
In the Broker’s Price Opinion, there are really only two different types that are very effective. That’s the exterior known as a drive by BPO and an interior BPO. It is a light appraisal in a sense. It has a lot of the same information. They are very accurate as far as my experience goes. We’ve had great success with having good quality Broker Price Opinions. They’ve had a lot of same content as the appraisals. As far as accuracy goes, they’re really accurate. The agents do a great job of pooling three listed and three sold comparables, which really does give them a good value when they’re coming up with their opinions. With the appraisals, they’re a little bit more thorough especially when it comes to the interior issue when you’re comparing that to a desktop or an exterior BPO where they’re only looking at the outside of the house. Obviously you’re not going to be able to see maybe structural damage on the interior which could affect drastically the price. That’s an instance where you’re not as accurate but the BPOs are very accurate.
Who are your clients? Who are all the different people and companies that order a Broker Price Opinion from you?
The largest clients would be split between two categories: that would be banks or other loan servicing institutions, the other half would be investment companies. It’s pretty equally split for us. There are a lot smaller areas that we deal with especially with legal companies, maybe divorce lawyers also occasionally. There are a lot of smaller ones that come and go. The investors and the banks/financial institutions are really the main categories.
Do you get a lot of real estate investors calling you for BPOs because they’ve got a portfolio or an appraisal challenge or they’re just looking at a particular potential investment and they want to get a professional opinion of the value to compare it against the sales price of the seller?
Yes, for all those reasons actually. Let’s say an investment company calls us up and they want some valuations done on several properties. There are a few different reasons why they would call me. They would want to monitor their current collateral they have. There are a lot of hotspots in the nation right now. Usually, we’ve had most investment companies calling us to get BPOs done on their local market when they’re looking to invest. We’ve had several companies who invest nationwide but they seem to come to us even when they’re in their local market. They could just have an in-house team to do it but the problem is we’re very effective and affordable doing it. They do use them to monitor their collateral. They use them to assess the risk of properties they’re looking to invest in. That’s really where it’s at for them is those two purposes is the biggest thing.
Here’s where I see real estate investors needing a BPO. Every real estate investor that is purchasing a property typically in fact most always is financing the purchase. They’re getting a bank loan or a lender’s loan of some sort, a mortgage loan. Occasionally, the appraisal comes in lower than the purchase price. It doesn’t necessarily mean that the property is worth less because with appraisals we’re talking about a scientific method to come up with an opinion. It’s still an opinion. In fact, I use the example of getting ten appraisers to do ten separate appraisals on the same property, same conditions and you’ll find out one appraisal is considerably higher than the purchase price. One appraisal will come in considerably lower. The other eight will be within 4%, 5% up or down of that purchase price. I don’t know how accurate that is but over the years I’ve seen that to be fairly consistent; that one-out-of-ten situation where an investor is purchasing a property. We know that it is priced well within that neighborhood. They have a bad appraisal done by an appraiser. Maybe the appraiser was having a bad day, had an argument with his wife, whatever the situation is, but they’re not happy about the appraisal coming in lower neither is our builder or our provider, the seller of that property. Nobody’s happy with the low appraisal when all parties know that it actually is worth more. In that situation where you have to contest the appraisal or appeal that appraisal, you have to go through a process with your lender, fill out a form and submit some comps. It’s not that hard to pull comparables. You can do it if you have access to various websites on the internet but more often than not, you’ll want a local real estate agent or a broker within that market to actually pull up some fresh recent comps, some sold and active comps off of the MLS. That carries some weight. It is far more effective to contest that appraisal using a BPO or an appraisal.
The BPO, correct me if I’m wrong, appears to be the best option because it is done by a third party. It is professionally done. It’s done much like an appraisal without all the extra add-ins and addendums and paperwork on the back and it can be turned around in a matter of few days. Maybe I’m putting words in your mouth here but I’m just explaining to the listeners where I see the value in it because I’m going through this right now with a particular property that I’m an escrow on. I know the value of that property is $120,000 but the appraisal came in the $102,000-$105,000 range. We clearly know it’s wrong. I need to hire a company like yours to get a BPO to contest it. Having said all that, tell me what your thoughts are on exactly what I just told you and how investors can utilize your services to do that, maybe just expand on it.
You said it yourself, the most important thing is the independent part of the nature of the BPO. One of the things that we do especially in disposition situations is to help set that independent price on the property. That’s actually more heavily used with REO’s than anything else. It is good to have that independent third party. Like you said, if you’re going to contest an appraisal and you’re pulling comps yourself, you’re going to do yourself every favor you can or at least if you were being as fair as you can, the banker, whoever, they’re going to see that and they’re still going to judge you either way and say, “You’re just being biased.” We are an independent company. That’s where we are useful for that situation like you said. Having a professional report done, I believe, it may not carry more weight as far as actual weight is considered to them but it does look a lot more professional. It does a better job of showing that you’re serious about reconsidering your appraisal.
How often do you have investors come to you looking for a BPO to contest an appraisal? Is that a lot or is it a very small percentage of your business?
It’s not very small but that’s probably under 25% of what we do. There are plenty of instances where I’m not 100% filled in on why I’m being used for the service. That’s not always something I can really have a luxury of finding out. I have actually been talking with a few of my clients lately who have actually been using them to set an independent price because they didn’t like where the appraisals came back. It is a chunk of the business but it’s not the majority of it.
I don’t know if you get feedback from people who actually ordered the BPO from you to contest an appraisal, if they actually tell you that they were successful in appealing it or no. Do you get any of that feedback from investors?
I really don’t at this point. It’s just something that’s more need-to-know basis, that’s not really something they feel that I need to know. They’re too busy anyway. I’m not going to ask too much about it.
What kind of packages exists? I know there’s more than one option when it comes to a BPO. What are those different options? What do they encompass? What do they cost? What is appropriate for what situation?
We offer three different types of BPOs. We offer what’s called a desktop BPO which wouldn’t require the agent or broker to go to the property. You’re really only looking for the three listed and three sold comparables and that’s it. It’s a very, very quickly done snapshot of the property. That one would be most useful due to its timeframe. It’s the quickest one. Usually they’re back in 24 hours, two days is the absolute latest. The timeliness of it is really the only benefit to it and the fact that you’re getting three listed and three sold comps is useful. Then you would move up to the exterior BPO which is also known as the drive-by. It would require the agent to view the property from the street only. We never ask them to go onto the property for the drive-by. That’s not what that’s about. Especially when you’re going out to a rural area, they may not always be able to actually see a dwelling if there is one or a vacant land they may not be able to see all of it but they do go out there and they take six minimum pictures of the area showing you as best as you can what it looks like. Then they do the three listed and three sold comparables. Then they would have a page of supplemental information that would talk about the subject marketability drivers, the neighborhood marketability drivers and some other information about the subject as well. They would put their comments in there and they would tell you what their as is value would be in there. If they have a cost secure based on any extra viewable repairs that they see they can also put a cost secure in there and show you what that value would be.
You would move up to the interior BPO for the most thorough in-depth view of the property. I forgot to mention the exterior generally takes 72 hours, which is three days, and then no more than five days usually to get those done but three days is a pretty good number. Back to the interior BPO, you move up to that and you get the best snapshot of the property. They would go out and they would call the property manager, the owner, the tenant, whoever and schedule the appointment to view the property and then they’d go out there, take all the same exterior photos, review the exterior of the property the same as they would on the exterior BPO. They would also go inside, take a look around the house and take at least six pictures of the interior of all different rooms. A lot of times we can get access to more. There are instances where you may not be able to see a whole lot just due to the clutter or whatever else in these houses. They get the best pictures they can and then they would factor any repairs or otherwise problems with the interior of the home into their report. Everything else I mentioned in the exterior BPO is there; all the marketability drivers for the subjected neighborhood. The interior would give you a better idea of any repairs that would need to be done on the inside of the property. They would comment on that and produce their as is value and their cost secure value and whatever other comments they would note about it. They’re very useful. The interior BPOs are definitely our most in-depth snapshot of the property. That’s probably our number one product right now is the interior BPO.
Are there situations where each of those service levels is more appropriate?
Yeah, definitely. The interior BPOs really can’t be used by people who don’t have intent to be on the property. If I’m an investor looking to invest in a particular residence or property, I wouldn’t really be able to order an interior because I wouldn’t have the ability to just go in there and ask some random owner who’s not going to let me in anyway unless I did own their property. On the contrary though, investment companies who do own the property and maybe they’re monitoring their collateral or otherwise they usually do prefer the interior BPO because they want to see how the tenant is treating the property is one of the big things.
A real estate investor contesting an appraisal, what would be the ideal service level? I’m asking this for my knowledge too. I usually tap into people I know in that market. I can usually tap into my network but I’m actually interested in using your service as well. I want to see how it works and how it plays out and how it compares. What would you recommend to me if I’m contesting an appraisal which is what I’m going to be doing here now?
If you’re going to be contesting an appraisal and you do have the ability to get the interior BPO as far as you would have access to the interior, that would definitely be more beneficial to you because there may be a lot of issues with the inside of the property. You don’t know if there have been any remodels or any real updates done just with the exterior. If you don’t have the luxury of having interior done, then the exterior would be the next best thing. It would still give you a great snapshot of the property. You just might not know other than what’s available publicly if there’s been any updates or remodeling done. That would be probably the biggest difference is knowing whether there has been any updates or not.
On that note, it actually is worth mentioning that if there is a tenant occupying the property, having an internal BPO, if that’s what you call it, having that done shouldn’t be an issue because that could be coordinated with the property manager and the tenant so that they are aware that someone’s going to be coming by on a certain date to come in and take pictures of the interior to properly inspect it. If it’s not tenant occupied or whether it is or isn’t, most of the properties that we sell through our network have a scope of work. There is a punch list or a detailed breakdown of all the work that went into that property in terms of the rehab or renovation. That could be provided to you for the client. That would obviously help your team, your agents, to write up a proper BPO knowing that $20,000, $30,000 went into renovation work.
We do include the construction cost all the time. We would have you provide the construction cost and we would give that to our agents who are fulfilling the BPO order. They would factor that in. That is a very big deal especially on flipped properties and investment properties. That’s definitely a large chunk of the value that you’re seeing in the as is value.
One other question I have for you is the proprietary software that you are using, how does that play into the BPOs? I would assume that you’re getting the BPO from the local agents that are spread out throughout the country. Do they give you raw information and you assemble it or do they package it for you there? How does that work?
They package it for us by going on to our website and there’s a couple of pages worth of information that they fill out. It’s already laid out so they have the fields and they know what goes in the field. Once they finish that, it produces a report on our side that we then put quality control on. We’re not asking them to give us raw information. They have to do the work for it. That’s how it works.
Cameron, is there anything else that you’d like to share with our listeners? I’m not sure which I didn’t ask you that I should’ve asked you. What else would you like to share if anything at all?
What I’d really like to share is that the Broker Price Opinions have been around just about as long as appraisals as far as I have been able to understand it. The Broker Price Opinions are very heavily used. I know that Fannie Mae especially, which we all know how large Fannie Mae is, they are required to use a BPO on all of their properties especially the short sale and mortgage release properties. If they’re using them as a requirement for their company, that’s a big deal. I know that a lot of my bank clients and financial institution clients, they’re required to use them as an internal policy within their company just for due diligence purposes just to reduce the amount of eyeballs looking at them and just to make sure everything looks as good as possible from an outside view point. They’re heavily used. They’re not as well-known about as they should be. Especially in economic downturns, they’re extremely valuable. I know back in the last crash, after 2007, BPOs went through the roofs. It’s because of the cost effectiveness of them especially in the secondary markets. If someone wants to get rid of their portfolio or reduce the amount of properties they have really quickly, it’s a big deal. They want to know all these values really fast so they can put together a number and get rid of them. That’s where the BPOs are very, very effective and valuable. I can imagine having hundreds to thousands of appraisals done versus the cost of hundreds. The equal amount of thousands of BPOs is significantly different. I just want everyone to be aware that BPOs are out there. I know they’re not very popular but they are up and coming and they’re very useful. We’d be happy to help anyone out with that.
BPOs are not as well-known amongst real estate investors and the general public because for the most part, it’s been more of an institutional tool. It goes between banks and the various institutional lenders that are out there. They use it as a tool to justify value of an asset or to do a quick check. It’s not something that real estate investors at the street level typically use because it’s either all or nothing. They either have a full blown appraisal or they have nothing at all or they just pull comps from the MLS whether they do it through an agent or online. The BPO to me is like that middle step. It’s halfway to an appraisal. It’s not a full-blown appraisal. You can’t use it to justify the value to your lender. They want a full appraisal. It’s not talked about very much even among real estate agents. They know what it is but it’s not something they use on a day-to-day basis like the appraisal. It’s out there. Real estate investors have access to it. They can use it if needed to justify value of their portfolio. They could use it to check up on a property that they’re looking to purchase, or they could use it to contest an appraisal just like I’m doing right now. Cameron, that’s great. I appreciate you being on the show today. It was a quick episode but it was right to the point. The BPO isn’t something that is all that complicated. This is a simple thing to talk about. Tell our listeners how they could find you, what’s your website and whatever other information you want to give out?
My name is Cameron. I’m the owner of Lakeside BPO. That’s the business name. The website is LakesideBPO.com. If anyone’s interested in giving us a call, the number is 928-466-4881 or you can send us an email at info@LakeSideBPO.com.
Cameron, I appreciate you being on the show today. Thank you so much.
Thank you very much, Marco. I really appreciate it.
There you have it. Now you know what a BPO is and what it could be used for. Maybe it’ll apply to you here in your investing career. If you have any questions about that, be sure to get in touch with Cameron over at Lakeside BPO. Just contact their office; I’m sure one of their staff can give you a hand. If you haven’t downloaded our free report, The Ultimate Guide to Passive Real Estate Investing, be sure to do that. It is a little report but it’s chock-full of information. It’s about 40 pages. It’s a great primer. If you’re thinking about investing or you are investing, that’s a great little report. If you have any questions about real estate or our turnkey properties, be sure to contact us at NoradaRealEstate.com.
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