REQUIRED READING: Data reigns supreme in the modern world of broker price opinions (BPOs), and evidence of that can be found in the growing quality-control (QC) demands being heaped upon vendor management companies that provide distressed-property valuations.
According to numerous BPO aggregators, the level of pre- and post-delivery due diligence that goes into valuation orders nowadays far and away trumps what has historically been expected by servicers.
By the same token, these management companies, whose broker panels range in the tens of thousands, insist that maintaining tight-knit relationships with brokers is paramount to ensuring agents' geographic competency, protecting against capacity problems and producing accurate valuations. With origination levels down so dramatically, real estate brokers are swarming to the relatively appealing world of property valuations, resulting in a pool of brokers that is wildly disparate in terms of expertise and professionalism. So-called "BPO mills" have begun dotting the landscape.
"There's a lot of brokers trying to get into this kind of work, so you want to make sure you've got folks who can do the work and have their systems and processes in order," says Gary Tolbert, Default Resource's vice president and general manager, who oversees the company's Mark To Market (M2M) valuation services division.
The quest for servicers and their outsourcers, then, is to strike a balance that enables them to have a panel that is deep enough to adequately cover a service area but not so large that poor performers go unnoticed and quality suffers. Fundamental broker qualifications, such as licensure and errors-and-omissions insurance, are well understood. Monitoring a national broker panel on an ongoing basis, however, is the hard part.
"Proof of insurance, proof of license – those things can happen all day long," says Ralph Sells, president and CEO of eMortgage Logic (EML). "Once brokers start working for you, that's when the rubber meets the road. That's when you decide whether or not they're the right agent to have in your network."
To gauge broker performance, vendor management companies have devised complex scoring systems. The ranking methodologies and rubrics vary from one shop to another. Objective factors – such as adherence to timelines and client requirements, median turn times, and the percentages of orders that are overdue or become aged – are weighted alongside more subjective factors, such as a broker's responsiveness.
Brokers are also graded on the completeness of their report. If, for example, a broker chooses a comparable property, or "comp," that is located five miles away from the subject property – which itself is located in a metropolitan area – the management company will expect the broker to support his or her decision in a written commentary.
"It's always a juggling between quality and turn time," Tolbert says of the broker-scoring process. "Our clients expect both. They want a good, quality product in the shortest amount of time possible."
Brokers' scores are typically updated after each BPO is submitted and reviewed, and their tallies help inform the routing of future orders. Servicers often aggregate this type of information from their valuation providers and then filter their broker candidate pool further to ensure their orders go into very specific hands.
Some of the criteria that servicers may establish include limiting their broker choices to agents who have listed a property in the market in the last 12 to 24 months or to agents who have produced a minimum number of BPOs in the recent past.
Perhaps the most critical element that goes into determining which brokers receive which orders is an agent's level of familiarity with a given market. When brokers apply to join a broker panel, they are usually asked to define their service area – a definition that undergoes further refinement by vendor management companies. Geographic competency is "absolutely key to selecting the best field agent for any assignment," says Brandon Melanese, senior vice president of business development for InsideValuation Partners LLC.
"To determine who is the best field agent, you have to leverage a high-ranking agent who is also in close proximity to the subject property," he says. "It's beneficial to create distance or proximity thresholds based upon urban, suburban or rural locations, and you can accomplish this either by ZIP code or population density."
A broker criterion some servicers and management companies find valuable is the requirement for brokers to be actively listing properties within their BPO service area, Melanese adds.
"Field agents that have active listings within the marketplace are often familiar with current market trends and nuances when compared to field agents who don't have open or active listings," he says.
BrokerPriceOpinion.com President Michael Richardson, however, observes that an active broker may also bring an unavoidable bias to the table when he or she is asked to provide a market forecast.
"I find someone that who's doing listings and closing deals will have a much more optimistic look at the market versus the [agent] who hasn't closed a deal in a while," Richardson says. "That could affect the outcome for what they think is happening in the local market – but whether that makes them more of an expert, I'm not sure, because they're still having to research the local market data."
When it comes to matters such as assigning BPO orders and measuring broker caseload, opinions also diverge. With regard to the former, some vendor management companies employ an automated billboard system, which basically posts an open BPO order before a select group of brokers and rewards the business to the person who responds the fastest. Proponents of these types of systems view them as a means of creating efficiencies and shortening timelines.
Katy Severson, valuations operations manager for Financial Asset Services (which does not assign orders this way), notes that many brokers object to BPO providers' billboard systems.
"A lot of agents complain about that because they're not in front of their computer all the time or they don't have a Blackberry and they miss an order," she says.
Another potential downside, according to Integrated Asset Services (IAS) President Ryan Tomazin, is that some real estate brokers have technology that enables them to automatically pull orders off of companies' billboard systems as soon as they are posted. IAS prefers to insert manutal involvement in the assignment process.
"We think a hands-on assignment is critical to ensuring the broker understands the order," Tomazin says. "An up-front dialogue also helps scale and scope the broker's capacity."
Most vendor management companies trumpet some form of proprietary software that monitors broker caseloads and has load-balancing capabilities built into it. As with broker scoring, the nuances of companies' case-management systems vary, but they all attempt to serve the same purpose: to avoid giving too much work to an individual broker, who, in all likelihood, is also working on assignments for other BPO firms.
The systems achieve this end by placing caps on the number of orders that an agent can have open at any given time. As Sells points out, there is a difference of opinion in the industry as to whether BPOs that have been submitted but not yet undergone QC review should be counted as an open order. EML waits until the QC has been performed before it adjusts the cap, Sell says.
A different caseload topic up for debate concerns the merit of blanket caps, whereby every agent in a system is limited to the same number of orders. Advocates of more flexible loan-balancing policies say a broker's capacity should expand or shrink according to the broker's score.
"You can have one agent who's a superstar who can handle eight or 10 open orders at all times and still perform beautifully in turn times and quality," Melanese says. "And you can have another agent who performs well, but only at four orders. You can't have a blanket approach to assignment caps. It's all about knowing how well your particular agents perform."
Pro Teck Valuation Services CEO Tom O'Grady explains that turn-time metrics ultimately reveal the brokers who bite off more than they can chew.
"The fact is, if they take too many orders, their turn times are going to suffer, and then they're not going to get orders because the assignment system's going to weight their turn time," O'Grady says.
Of course, no factor plays as important a role in measuring broker performance as accuracy.
You say tomato, I say comparable
An opinion of value is only as good as the comps from which it was derived. Because of this, nothing generates as much buzz among valuation specialists as comp selection and validation. Whereas servicers might have limited control over certain aspects of outsourced BPO management, vendors say they can and should provide guidance in comp selection.
"One of the pitfalls is [servicers'] not clearly defining the request to the broker, and the broker taking his or her own individual approach to valuation that ultimately is not what the bank and/ or servicer is seeking," says Tomazin. A BPO prepared for short sale purposes should be supported by short sale comps and listings, and if a servicer is looking for retail execution on a real estate owned (REO) asset, the servicer should clearly instruct brokers that it wants retail sales and retail timelines, he says.
M2M's servicer clients are pushing back less than they used to when it comes to using REO sales as comps, Tolbert says. "Whereas a couple of years ago, servicers refused REO comps, what they're likely to say now is that if the market is primarily an REO market and I know my subject property will be competing with REO sales, REO comps are allowable," he says.
There is "definitely reluctance" around using short sales as comps, Tolbert adds, because the relationship between buyers and sellers in a short sale transaction is uncertain. Furthermore, banks' disposition strategies are unclear, and servicers may be more aggressive about what they accept on short sales, which could downwardly skew the price point.
All vendor management companies have QC algorithms that check for a BPO's adherence to comp rules – for example, that it complies with proximity and square-footage thresholds. Most shops supplement automated rule reviews with manual reviews performed by appraisers, other brokers or asset managers. The review process involves more work than ever before, Sells says.
"Production-wise, we're probably reviewing half as many orders per person as we did four years ago," he says. "That's how stringent the rules have become, client to client. Everything's so specific that we literally have to look at each order as though we're the client. There is no more generic standard."
Beyond valuation accuracy, turn time and customer service, the options for a vendor management company to differentiate itself from the competition are few and far between. However, one key differentiator – access to market data for use in comp validation – is emerging.
"Even though the real estate agent is the expert in the neighborhood, we're being asked to double-check everything they do with our own analysis and review," Sells says. EML, like many of its competitors, is on the hunt to obtain more – and more granular and timelier – property data.
"We're all trying to obtain MLS data," he explains, referring to coveted Multiple Listing Service data sets that themselves total in the thousands. "It's the best thing we have to know if we have the right information. MLS data's going to play a huge role – not just in the success of BPO providers and the management of BPOs, but actually on the servicing side."
With potentially hundreds of comps available for a particular subject property, vendor management companies are making efforts to reassure servicers of the integrity of brokers' comp selections. Some companies are hoping that alternative BPO products will achieve the same goal. The company's latest hybrid offering compares three independent BPOs and produces "high-confidence comps" (those that were selected by more than one of the agents).
Several vendor management shops say the added data checks and heightened QC around comp selection also provide opportunities for reviewers to discover where brokers went awry, discuss the comp choices with the field agents and, in turn, educate them on best practices. Critical to the training component, however, is the need for ongoing communication between management companies and brokers.
"You have to have a partnership mentality where the broker cannot be afraid to ask a question," says Sells. "You have to take the time to train them and educate them on what you're looking for. If you're burning through agents, you're never training."
