Your borrower just hit 90 days delinquent. You need a property value to model loss mitigation options. Do you order a BPO? An AVM? A desktop appraisal? A full appraisal with interior inspection?
Most servicers make this decision based on habit, policy defaults, or what their previous vendor recommended three years ago. But the wrong valuation product can waste money and create risk.
If you use an AVM on a property that needs eyes-on inspection, you might overvalue collateral by $50,000. Order full appraisals on straightforward properties, and you've burned through your budget on the wrong assets.
The best default servicers think about valuation products strategically. They match the product to the risk, the property type, and the decision being made.
Here's how to make that call.
Understand Your Options
Let's start with what each product is and isn't.
Automated Valuation Model (AVM)
A computer algorithm analyzes public records, MLS data, tax assessments, and recent sales to generate a value estimate. No human inspects the property. The model produces a number in seconds.
- Speed: Instant to 2 hours
- Market Cost: $5-$25 per valuation
- Accuracy: Highly variable (excellent in data-rich suburban markets; not so much for low data, rural or unique properties)
- Regulatory acceptance: Limited; not typically accepted for high-stakes decisions
Broker Price Opinion (BPO)
A licensed real estate agent physically inspects the property (exterior or interior), selects comparable sales, and provides a market value opinion. It's faster and less expensive than a full appraisal, with less stringent methodology requirements.
- Speed: 48-72 hours (exterior); 5-7 days (interior)
- Market Cost: $75-$150 (exterior); $150-$250 (interior)
- Accuracy: Good for standard properties in normal markets; requires skill for distressed assets
- Regulatory acceptance: Widely accepted for loss mitigation and REO disposition
Desktop Appraisal
A licensed appraiser performs a USPAP-compliant appraisal without physically inspecting the property. They use public records, MLS data, photos (if available), and comparable sales analysis to develop a value opinion. More rigorous methodology than a BPO, but without verification of current condition.
- Accuracy: Very good for properties in stable condition; risky if condition is uncertain
- Regulatory acceptance: Generally accepted, though some situations require interior inspection
Full Appraisal (Interior Inspection)
A licensed Appraiser physically inspects the interior and exterior of the property and prepares a comprehensive USPAP-compliant appraisal report. This is the gold standard for accuracy but the most expensive and time-consuming option.
- Accuracy: Highest available (when performed competently)
- Regulatory acceptance: Required for certain GSE transactions and high-value decisions
The Risk-Based Decision Framework
Here's the framework we use with our clients to select the right valuation product. It's based on three factors: property risk, decision stakes, and data availability.
Low Risk + Low Stakes = AVM
When to use AVMs:
- Initial portfolio monitoring or quarterly mark-to-market on performing loans
- Properties in data-rich suburban markets with high comparable sales volume
- Loan-to-value ratios well below 80% where precision isn't critical
- Pre-screening to identify which properties need closer inspection
- Decisions where directional accuracy is sufficient
Example scenario: You're conducting quarterly fair value assessments on a 5,000-loan performing portfolio. Most properties are in stable suburban markets with LTVs around 60-70%. An AVM with a confidence score can flag properties that have potentially dropped in value, and you can order BPOs on the outliers.
When NOT to use AVMs:
- Properties in rural or low-density markets with limited sales data
- Unique properties (architectural homes, large acreage, mixed-use)
- Any property where condition is uncertain or likely below average
- High-stakes decisions (foreclosure, short sale approvals, loss mitigation evaluations)
- Any situation where regulatory scrutiny is likely
Moderate Risk + Moderate Stakes = BPO (Exterior or Interior)
When to use Exterior BPOs:
- Initial valuation for loss mitigation evaluation on properties believed to be in average condition
- REO disposition pricing for properties that appear well-maintained
- Properties in neighborhoods where condition is typically consistent
- Short sale valuations where the seller is cooperative and property appears maintained
When to use Interior BPOs:
- Loss mitigation decisions on properties where condition is unknown
- REO disposition pricing when property has been vacant or borrower was uncooperative
- Any distressed property situation (foreclosure, short sale, bankruptcy)
- Properties in declining neighborhoods where deferred maintenance is common
- When you need documented evidence of condition for asset management decisions
Example scenario: A borrower is 120 days delinquent and has applied for a loan modification. The property is in a stable neighbourhood, and recent drive-by suggest it's maintained. An exterior BPO gives you a current market value quickly enough to evaluate modification terms without the cost and delay of a full appraisal.
When to upgrade to Interior BPO: If the borrower mentions deferred maintenance, if the property has been vacant, or if neighboring properties show signs of decline, get inside. The cost difference between exterior and interior BPO is nothing compared to the cost of overvaluing collateral.
Higher Risk + Moderate Stakes = Desktop Appraisal
When to use Desktop Appraisals:
- Portfolio acquisitions where you need USPAP-compliant valuations but can't inspect thousands of properties
- Loan modification or refinance situations where you have reliable recent photos and condition information
- Properties in stable markets where recent AVMs align with expectations, but you need more rigorous methodology
- Regulatory situations requiring appraisal-level documentation but where interior access isn't feasible
Example scenario: You're acquiring a portfolio of 800 loans as part of an MSR purchase. You need USPAP-compliant valuations for due diligence, but you can't physically inspect every property in your 30-day due diligence window. Desktop appraisals, stratified by risk (full appraisals on the higher-LTV or distressed properties), give you defensible valuations efficiently.
When NOT to use Desktop Appraisals:
- Any property where condition is uncertain and material to value
- Properties where you suspect significant deferred maintenance or damage
- Legal situations (divorce, estate, litigation) where interior inspection might be challenged
- REO properties being prepared for sale
High Risk + High Stakes = Full Appraisal
When to use Full Appraisals:
- High-value properties (typically $500,000+) where valuation error has major financial impact
- Properties with known significant condition issues requiring detailed documentation
- Legal situations (divorce, estate settlement, litigation) where valuation will be scrutinized
- Regulatory requirements (some GSE guidelines mandate full appraisals above certain thresholds)
- Complex properties (unique architecture, mixed-use, large acreage, limited comps)
- Any situation where your decision might be legally challenged
Example scenario: You're foreclosing on a $1.2 million property in a high-end neighborhood. The borrower claims the property has foundation damage and is worth far less than the loan balance. This isn't a BPO situation—you need a full USPAP-compliant appraisal with interior inspection and detailed condition documentation to defend your decisions.
Whatever the property or risk level, Opteon offers AVMs, BPOs, desktops, and full appraisals to support smarter, faster default decisions. Let us know how we can help.