BPOs ‘Made in India’

Michael Ford

Michael Ford

General Certified Real Estate Appraiser at Michael F. Ford Appraisal
Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory
Michael Ford

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BPO Outsourced to India Replacing Appraisals$10 a pop ‘Made in India’ BPO…

When saying you’re 'sari' just won’t do.

The Blackstone Group is nothing short of legendary. To say it is a 'Big Deal' is an understatement squared.

A little background from their website.

“Who We Are

Our investments are designed to preserve and grow our limited partners’ capital, provide financial security for millions of retirees, sovereign wealth funds, and other institutional and individual investors, and contribute to overall economic growth.”

An honorable & worthy objective by any measure. Helping retirees on fixed income, little old ladies, grandmothers and mothers, albeit wealthy ones I’d guess.

Sovereign wealth funds are more complex. While I could have guessed at the meaning I had to look it up to be sure. I urge any readers to do the same now. I’m paraphrasing here, but these are funds representing sovereign wealth that is so significant that its loss could have earth shaking impact. Their loss could collapse national economies. They are also funds that are not particularly transparent.

Think 'Too Big to Fail'… and then some. I have no idea who those other institutional and individual investors are. Maybe even a 34%+/- owner of the very bank that loaned the hundreds of millions, an investor from the land of sand and dead dinosaurs? Who knows.

Normally I’d say 'who cares.' Far out of my league. I’m simply a humble real estate appraiser. But… I watched The Big Short on TV. Didn’t read the full book mind you – just the visual version for those of us that are intellectually challenged; AND I read the Wall Street Journal Article by Ryan Dezember and Peter Rudegeair about Drive By ‘Appraisals.’ Even that title is a teensy bit of a misnomer.

You see, they aren’t really drive bys, and they absolutely are not appraisals.

Appraisals are credibly supported opinions of a specifically defined value-type, developed and supported in accordance with established standards and principles, performed by professionals that have passed rigorous tests and been licensed or certified by their states in accordance with specific federal appraisal guidelines and requirements; and who have further extensive experience gained over years of professional practice.

No, these are reported as BPOs, which are much different. Actually that too is a misnomer. A BPO or Broker Price Opinion is (theoretically) performed by an experienced real estate broker. They are NOT supposed to be done by an agent associate, or they’d be called AAPOs. Besides, in virtually all states, agents are required to work under the direct supervision and authority of their brokers. Hence the product is called a BPO.

When lobbyists for various cheapskates using other people’s money go before Congress or Federal and State Regulators asking that the use of these BPOs be allowed in highly limited, always so rare as to be almost non existent closely controlled circumstances they never say “We will send our brand new sales associates that are still too inexperienced to earn a living in real estate to inspect these from the curb.”

Nor do they say “We will employ our teenage children as picture takers and send them out to inspect these properties; then have our office secretary write them up for the broker’s signature.”

You see, the game is simply not played that way. The pretense that these were inspected by a qualified professional must be maintained. So too must the pretense that any opinions or value conclusions offered have been prepared by a local real estate expert that knows the local market and has his finger on the pulse of area nuances.

Lastly, the pretense that successful and knowledgeable brokers are driving around for $25 inspection fees in the middle of their otherwise productive day is absurd. Coupled with the average net BPO preparers fee of $50 to $65 they simply are not going to do these things instead of seeking that $5,000 to $75,000 commissions they became brokers to earn.

In my experience as an appraiser who sometimes meets these 'BPO folks' in the field at a specific property, I’ve found most are either the broker’s handyman, a local agent’s teenage son, an unlicensed 'bird dog' trainee (lead generator), or, in the best case scenario, a limited skill agent that is broke enough to need the money generated by these products. $25 to $50+/- today and perhaps every few days is better than sitting on back up floor time or door knocking, right?

The paragraph above is a best-case scenario of what I’ve seen. I really didn’t think it could get any worse than the unlicensed teenage agent son that was sent to meet me at a property one day, who also bragged how he had produced the entire BPO except for signing. He was so proud! (Thank you OCWEN!)

It got much worse.

Hybrids” were talked up as if they could be credible appraisal alternatives. Many lenders even promoted that false hype. A product was developed wherein a picture of a property may or may not have been taken by someone (or taken from the MLS of the property, or using Google Earth / Streets); and then someone else found all the ‘comps’ and juggled some numbers until the wholly fabricated value ‘picture’ appeared presentable. To minimize any potential paper trails, these products are all done online using intermediary’s proprietary software. No trail a simple inexplicable ‘crash’ or a hammered hard drive can’t fix.

HOW COULD IT GET ANY WORSE?

Enter the Bangalore Bandits (or as my daughter’s Mom would say Los Banditos Bangaloros). WHAT IF these outrageously costly BPOS could be done for $10 a pop instead of $25 to $65?

Nope! American brokers, (or at least their handymen & secretaries) provide invaluable “value added” services. How could anyone replace that?

“AbVin co-founder Abhishek Shimoga Onkaraswamy said his staff of 50 in Bangalore churns out as many as 300 BPOs a day using the clearinghouses of sales and listings data compiled by Realtors, who he said provide AbVin with login information[i], as well as websites like Zillow.”

“There’s not a big difference between what a broker can do and what we can do,” he said. “We know what these companies are expecting from the brokers.”

Sadly, those might just be the most honest words ever used to describe the bulk of BPOs and all hybrids.

So, on a good day six (6) $10 alternatives to a real appraisal are performed using ancient secrets of the orient, and mystical techniques known only to the Bangalore Banditos. Using a combination of ePixiedust, clairvoyance and fairy flatulence ‘Swami’ Onkaraswamy can give the companies the results they are expecting.

…and as a taxpayer who is guaranteeing anyone remotely considered to be Too Big to Fail (Again), this scares the hell out of me!

For the $3,600+/- a day that six “real” appraisals should cost, Blackstone, and Lord knows how many other investment brokers have cumulatively managed to sell around $20 Billion worth of bonds?

OK, they save more than $3,600 a day.

“BPOs have really taken hold as a way for lenders and investors to do evaluations en masse,” said Dennis Cisterna, chief executive of Investability Solutions, which provides services to rental-home companies. “Using appraisals on every property usually isn’t fnancially or operationally feasible.”

When Fannie Mae last year guaranteed about $1 billion of Invitation Homes debt, it accepted BPOs for the 7,204 houses serving as collateral. Assuming a typical appraisal price of $450 and the $95 that Invitation Homes pays per BPO, the company saved about $2.6 million.” At these ratios the total savings is around $52,000,000.

That’s a savings of about 0.0026 or less than 3/10ths of a percent! THANK YOU FNMA! For a savings of less than 3/10ths of a percent FNMA has fired up that big ol’ Recession Generator and set it to Full Tilt Boogy!

And Wall Street helped!

“Credit-rating frms usually discount BPO values when grading rent-backed bonds. Kroll Bond Rating Agency has trimmed them by about 10% and uses the lower of the reduced BPOs and the amounts spent buying and renovating the homes.”

Ummm, the same guys that sort of missed the risk back in 2006-2008 kind of credit rating agencies? “Oops!”

We can all rest easy knowing the SEC is on top of the matter. I mean look how many were jailed the last time for this kind of criminal-like negligence.

Most likely the excuses for the 20/20 post mortem after the next economic collapse have already been written, alphabetized and numbered for bureaucratic convenience.

~Expletive deleted~ by author. I don’t care if they say Sari, Saree, or Sorry. This time it ain’t gonna be enough!


Footnote: [i] It violates virtually all MLS Board use policies to let someone else use your MLS login. Realtors® are bound by ethics rules. There is nothing at all ethical about what the Swami describes and I don’t accept that it is Realtors® providing this information.

Image credit flickr - Mitul Nakum
Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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27 Responses

  1. Appraiser says:

    No onion. He speaks the truth. The banks are running wild again. Recession coming soon to your town.

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  2. wontobey says:

    Here we go again…”quick, cheap & dirty”… when will we ever learn?

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  3. Jack Of All Trades says:

    It is known that some realtors do these BPO’s for free from these companies for a chance to list the property , there are no guarantees that they will get the listing. 

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    • Hi Jack, Two points;

      1. Realtor® and Realtor® are registered trademarks. Lately it seems like appraisers don’t know the difference between a Realtor(r) and a real estate agent or broker. A broker is not a Realtor(r) unless they agree to abide by the NAR Code of Ethics; pay a fee and are either a broker or real estate appraiser. Its sort of like the difference between a new licensee and a certified appraiser. Much higher standards involed.

      2. Agents used to do free BPOs to get business…about three to five years ago. I doubt any are that stupid anymore. Even back in 2007 BPOs didn’t pencil out when fees were $125 each.

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      • Jack Of All Trades says:

        I agree and understand what you are saying mike, most of those realtors that I have talked to belong to NAR, the problem with realtors as you know is anyone can be one with limited education, the new ones that fly out of the door typically do them for free or for $10 to establish themselves in there mind, ultimately though they fizzle really fast, just like we have problems with AMC’s they too have problems. The smart ones don’t do them obviously or the established ones

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  4. Koma says:

    The lenders will state we appraisers are just being hysterical and should give some of these products a chance…HA And when the crash comes they will say where were, why weren’t the appraisers telling us this. 

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  5. Xpert says:

    Excellent article Mike! This is insane! Looks like Wall Street is fully committed to causing another crisis. Will some go to jail this time? Not holding my breath. This article needs to be circulated widely, not only among appraisers, but also consumers, Congress, etc.

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  6. Xpert – It is. Copy on way to authors of the WSJ article through another source; I emailed NAR today and I know from past experience that certain members of federal regulatory agencies also read AppraisersBlogs. Certain members over at VaCAP are putting together a plan of action re legislators right now, I believe. As far as I’m concerned this is yet one more reason among many why a single federal regulatory agency needs to be directly involved in day to day appraiser and appraiser policy/AMC administration and enforcement. Same agency that requires national registry for both us, and AMCs. ASC. Literally every meaningful problem we face as appraisers could be solved this way. Right now enforcement at all levels is akin to a Three Stooges or Keystone Kops Comedy. 57 State and Territorial agencies all pointing in different directions to blame someone else. Lets put ASC/FFIEC  in charge.

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  7. Bill Johnson says:

    I can’t wait to read the appraisers coach future blog of which I’m sure there will be a positive spin relating to this topic. If anyone can do 4 to 9 full appraisals per day with an Uber driver, and two matches, I’m sure anyone can do 40 to 50 of these per day and be in the office on Mondays only.

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  8. P T says:

    Mike, another brilliant piece. The W S J is going all out on this.  This article is just the beginning. 

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  9. don says:

    Why are appraisers afraid out siders. Doesn’t the past loan failures illustrate the main point. Many realtors are more honest than many appraisers and have a better  knowledge of their market. M. Ford is correct a Realtor is not a licensed agent. Is that also true of licensed appraisers?

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    • Don, we aren’t ‘afraid’ of outsiders. We are licensed or certified through state tests that make your agents license exam look like child’s play (I’ve been a licensed salesman twice spread over a 16 year period from 1971 -1984/6).

      ALL we insist on is a level playing field. Federal Law required that we become licensed, back in 1989. Ever since that time, lenders and Loan Officers, along with some agents have sought to undermine those regulations that bind us  In this specific instance, what we are referring to as a concern is the outright fraud being perpetrated against investors when these overseas magical guesses of value are portrayed as being any kind of appraisal OR  BPO! For the rating agencies to arbitrarily discount values by 10% is pure subterfuge.

      I cannot think of a single Realtor®, OR broker that I know who would support such a process. Would you outsource your CMAs to Bangalore?

      This issue goes far beyond the traditional Agent-appraiser conflicts; and yes, we know most agents are as honest as any other person.

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  10. Diana N. says:

    As a Realtor Emeritus and also a Certified Appraiser I am ashamed of these things and the people doing them..

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  11. Eric Kennedy says:

    Thanks Mike

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  12. Jason says:

    Why are they even called Broker Price Opinions when no brokers are involved in this “ancient secrets of the orient, and mystical techniques” guesswork? Shouldn’t they be called Indian Price Opinions (IPOs)?

    Starting to sound a lot like 2006, 2007 and “BOOM”!

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  13. TruthBTold says:

    Great job Mike Ford! I will get this on all my social media outlets. We don’t want a repeat of the past market crash where everyone blamed the appraisers for “bad appraisals”. This time the truth will be well documented!

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  14. P T says:

    Guys and Girls, WHO is going to be odering the wonderful hybrids? The AMCs are. SOOO what are they charging the lenders?  Let’s just guess $200 +/-.  Now their business model is to find the quickest and cheapest appraiser. UMMM do you think they are gonna pay appraisers WHAT??????

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    • $10 for India product; $11.37 for American?

      I will not accept discount hybrid orders under any circumstances. ANY that I hear about with enough data to identify an order; borrower and property (+ appraiser), I will be sending to state regulators inquiring as to whether they really think $25 products are USPAP compliant. Let the chips fall where they will.

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      • Diana N. says:

        Mike, I will do the same in CT if I get any. will be interesting to see if CT does anything about, they always seem to be more about the $$ than regulations.

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        • Outstanding. Also IF we get any that claim to be USPAP compliant, lets submit them for group comment here on bogs. If consensus is a thumbs down, then we have something specific to suggest in state complaints.

          For the record; AGA is not ‘going after’ appraisers. AGA IS trying too defend sound appraisal practices and assure that we are all playing on the same level regulatory field.

          Appraisers don’t do the kinds of these products that I’ve seen so far.

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BPOs ‘Made in India’

by Michael Ford time to read: 6 min
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