John Occhi did a fabulous job of describing how to do BPO's (John, did I train you?) I want to elaborate on the Driveby BPO. The Driveby BPO is the MOST critical BPO you will ever do. Most drivebys are pre-foreclosure values. This means the banks need to determine the FMV (Fair Market Value) in order to determine how much to bid for the property at the foreclosure sale. I.E., the bank has a property in default with a principal balance of $180,000 (at one time banks would bid as high as the PB but not in today's market.) They order a driveby BPO, you do your comps, etc and determine the FMV is now $150,000. The bank buys it back at the sale for $150,000. They now request an interior BPO and once inside you determine that the property is now worth $100,000 - what happened? The interior needed repairs, the roof leaks, the appliances are missing,etc. Now the bank is out $50,000 because you did not do a "good" driveby, you did not allow for unknown interior repairs. You can see the exterior like roof, paint etc and hopefully you addressed this in your BPO.
As a rule of thumb, I do not care how fantastic or how new a house is, you had better allow for at least cosmetic repairs such as carpet, paint, appliances and miscellaneous. Age of the property will also play a key role. If the house is 10 years or older better add the cost of a roof, HVAC, etc. Then explain in the comment section why you are deducting $20,000 for unknown repairs.
AND if the property is vacant, go ahead and get out of your car and walk around the property. John mentioned about some agents doing driveby BPO's in 30 minutes, well, I'm sorry, but if I am a bank, I don't want this agent doing any BPO's for me!
When I first became an Asset Mgr I cannot tell you how many times I saw this, but with additional training to the REO agents things got better for awhile. Unfortunately, because of the volume, new agents are doing Driveby BPO's that have no clue of how important this BPO is to the bank.
Don't know how to determine costs? For flooring - SF divided by 9 X cost per sq yd will give you an estimate on replacing carpet/vinyl, i.e., we have a 2000 SF house divided by 9 = 222.22 sq yard X $21.00 sq yd = $4,666 for carpet/vinyl. Roof on average will be 2 1/2 to 3 times the SF i.e., 2000 SF X 2.5 = $5000 for a roof, interior paint on average is 1 1/2 to 2 times the SF, i.e., 2000 SF X 1 1/2 = $3000 for interior paint. Appliances on average $400 ea for stove and DW.
One last thing - even if the Driveby BPO is only one page and does not contain a comment section - I always and I emphasize ALWAYS, attach an addendum to explain how I arrived at my value and let the banks know what the market/neighborhood conditions are. This will impress banks as it lets them know that YOU KNOW your business.
Now for those of you who do not know me here is my brief bio - Licensed TX realtor since 1971, moved to commercial real estate in 1982, sold, leased and managed commercial real estate that included office, highrise, strip centers and a shopping mall. Returned to residential in the late 1980's and sold foreclosed properties for RTC, Bank United, Fannie Mae, GEMICO, MGIC. In 1993 was hired by Lomas Mortgage as an in-house real estate agent for their foreclosures, while there we implemented the "Short Sale" program. I transitioned to an REO Asset Mgr for Lomas, CALMCO, The Associates and then EMC Mortgage before returning to residential last year. Lomas Mortgage's REO Dept had a great impact on how other banks started their own REO Depts.
I hope this helps!