The Ritter & Randolph, LLC Blog

Large Real Estate Investors Turn To “Drive By” Home Appraisals

Aryeh M. Younger, Esq.A recent article in The Wall Street Journal highlights a rise in so-called “drive by” home appraisals used by major real estate investors in the U.S. These appraisals, also known as “BPOs” (broker price opinions), are a form of informal price valuations conducted for far less than the cost of traditional home appraisals. BPOs are often referred to as “drive by” appraisals because the appraisers typically do not do much more than identify homes on Google Earth or on popular websites such as Zillow.

Following the financial crash, Congress banned the use of BPOs for traditional mortgages as part of its effort to pass tighter financial regulations. But as the Journal reports, the prohibition did not extend to real estate investors who purchase tens of thousands of homes, such as large investment companies. These large investors are still permitted to use BPOs as a cheaper alternative to traditional home appraisals.

The rise in BPOs has led to a sub-industry for realtors and other industry members who perform inexpensive valuations for large real estate investors. Large investors recognize the value in farming out valuations, and today many BPOs are even performed overseas in India.

Although BPOs provide an inexpensive means of obtaining home appraisals for large investors, they are certainly not without risks. BPOs have been used to value collateral for more than 20 billion dollars in bonds issued by large institutional landlords. Given the inherently risky nature of BPO valuations, financial markets could face trouble if many of these BPOs turn out to stray far from proper valuations. Ordinary home buyers are already banned from using BPOs—and for a good reason. Home appraisal is a complicated business best left to professionals.

Whether Congress eventually bans large investors from using BPOs may depend on the nature of the next financial crisis.

New Report Predicts a “Seller’s Market” for Residential Real Estate in 2018

Aryeh M. Younger, Esq.A new report published by the real estate portal,, predicts that 2018 will be a “seller’s market” for residential real estate in the United States. This would continue the trend from last year. The report is based on the predictions of more than 40 independent real estate experts and specifically examines four different factors. These factors include: (1) changes in the average price of homes; (2) changes in the number of homes for sale; (3) changes in the labor costs of building a home; and (4) changes in the cost of materials used for home construction.

The overall national outlook appears to favor sellers: home prices are predicted to rise, the total number of homes for sale is expected to decrease, construction costs are expected to rise, and the cost of building material is expected to rise.

But not all regions are expected to follow the national trend. In fact, Cincinnati is cited in the report as a Northeastern city expected to favor neither buyers nor sellers. The price of homes in Cincinnati, unlike in seller friendly Cleveland or Columbus, is expected to remain mostly the same as in 2017. The number of houses on the Cincinnati market is expected to increase, but the cost of construction is expected to go down and the cost of building materials is predicted to remain roughly the same.

Nevertheless, according to one real estate expert, Jeff Baker, the Cincinnati market is slowing down “but it’s expected to rise back to more realistic pricing in the coming year.” If Baker is right, perhaps it is possible that the national “seller’s market” trend might eventually come to Cincinnati. Only time will tell.