For agents and brokers, one of the most anticipated steps in any transaction is the appraisal. This step many times can make or break the deal.

Faulty appraisals were at the center of the housing bust a decade ago after some lenders relied on a sort of drive-by valuation done by real-estate agents that are more cursory and cost far less than traditional appraisals. reported that in the wake of the housing crash, Congress outlawed the use of such assessments, called broker price opinions, or BPOs, to value properties for traditional mortgages. But the prohibition, enacted as part of doesn’t apply to investors buying tens of thousands of houses.

Now these perfunctory valuations abound, underpinning tens of billions of dollars of home deals. Sometimes the process is outsourced to India, where companies charge real-estate agents a few dollars to come up with U.S. home values by consulting Google Earth and real-estate websites.

In recent years, BPOs have been used to value collateral in the more than $20 billion of bonds sold by institutional landlords, such as Blackstone’s Invitation Homes Inc., and in the fast-growing business of lending to individual house flippers.

Banks request them when considering whether to foreclose or negotiate repayment plans with delinquent homeowners.

Their popularity shows how Wall Street is finding ways to adapt to government efforts to crack down on some of the excesses that contributed to the housing crisis.
However, some critics say BPOs are ill-suited to gauge home values and could leave debtholders with less collateral than they thought. Properties worth less than their debt could result in losses for investors, while inaccurate price information might misguide a lender in a foreclosure process.

“BPOs are a creature of financial institutions that want deals to close fast, and so they don’t have to use an appraiser,” said Donald Epley, a retired University of South Alabama professor who helped write national appraisal standards after the 1980s savings-and-loan collapse. “You’re just dumbing down the standards to make the loan.”

The new trend hasn’t gone unnoticed with the Securities and Exchange Commission investigating whether rental-home companies pushed for higher valuations on properties underlying securities.

Meanwhile, appraisers and REALTORS® contend that the quality of BPOs has deteriorated as the price for performing them has dropped to as little as $25 a house from $50 or more.

Appraisers must be licensed, but the people performing BPOs don’t need much training or an appraisal license since the estimate is simply meant to suggest listing prices.

BPOs aren’t without their supporters. They say that when pooling thousands of houses in an investment vehicle, individual valuations that are too high or low tend to balance out.

Furthermore, the challenge for appraisers to enter occupied homes also pushes investors toward BPOs, which they say are usually as accurate as appraisals.

In 2017, Fannie Mae guaranteed about $1 billion of Invitation Homes debt, accepting 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.

However, credit-rating firms generally discount BPO values when grading rent-backed bonds. Kroll Bond Rating Agency has trimmed them by about 10 percent and uses the lower of the reduced BPOs and the amounts spent buying and renovating the homes.

BPOs have been around for decades but boomed in the mortgage meltdown. Lenders ordered reams of them to price repossessed homes. Real-estate agents gobbled up the jobs as home sales dried up. Many, like Barbara Eisman, hoped the valuation work would lead to property listings.

It never did, said Eisman, a Washington, D.C., REALTOR®. Yet the roughly 5,000 BPOs she performed over the last decade provided regular income. Her recent assignments have included drive-bys to see if foreclosed homes were vacant and interior exams for mortgage modifications.

Edward Wisniowski, a Crest Hill, Ill., broker, dialed back on providing price opinions after pay for many fell below $50. He turned away Indian firms offering to do his work. “I don’t know how they can do it,” he said.

Francois Gregoire, a St. Petersburg, Fla., appraiser and former state regulator who has examined thousands of BPOs as a litigation consultant, said quality varies greatly. “Some look like the real-estate broker hired someone to go take photos of the property and did nothing more than sign the BPOs.”

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