A Broker Price Opinion (BPO) is very similar to an appraisal except that a real estate broker (or agent) does it rather than a lender’s appraiser. A BPO is also similar to a comparative market analysis (CMA) that real estate agents use to suggest a listing price to a seller. It boils down to a BPO being another tool that can be used to determine the current fair market value of a property.
Like an appraisal or CMA, a BPO depends upon a list of comparable properties, dates they last sold, and how they are different, either better or worse, than the property being considered. In addition, subjective factors are much more powerful for a BPO than an appraisal. It is performed by a real estate broker or agent based on a broad knowledge of the local real estate market. The broker’s opinion, in other words.
The Foundation of a BPO
The broker uses their expertise to determine a dollar value of the property based on certain factors. It’s best to have a BPO performed by a broker who is familiar with the local housing market.
BPOs are usually considerably less costly than an appraisal. You can expect the starting cost for a BPO to be roughly $50 and up. An appraisal can run anywhere from $350 to $500 or more. One thing that can be better about a BPO than an appraisal (other than the price) is that an experienced and knowledgeable broker can often provide estimated repair costs. But don’t mistake a BPO for a home inspection. A professional home inspection is much more thorough about looking for damage and repairs needing to be made.
In many circumstances, a lender will require an appraisal rather than a BPO because an appraisal is from an uninterested third party. A broker may have a vested interest in the house being valued and the general value of the houses in the neighborhood.
Two Main Types of BPOs
There are two typical BPOs, the Drive-by or Exterior BPO and the Interior BPO. Most often, you want an Interior BPO. It is the more comprehensive of the two. Everything from an exterior BPO will also be included in an interior BPO but the interior will have much more information.
An exterior BPO should include a minimum of three photos from the property being considered. One photo that shows the address and front of the house – often from the curb. Another looking down the street to show a little about the neighborhood. And one or more additional exterior photos of the house showing the general condition or disrepair. The broker will use tax records to find detailed information about the property – description, square footage, lot size, age, etc. Most BPOs also provide information about 3 comparable property sales and 3 comparable listings. The broker will look up the properties on MLS to determine when the properties were recently sold and for how much.
When to Use a BPO
There are many times when a BPO is preferred over an appraisal. One significant difference between the two is that an appraiser may be looking at it with a view towards conservative risk for a lender rather than a straightforward real estate transaction. A BPO can be particularly useful early in a real estate transaction. It can be at the request of the seller, potential buyer, or private lender. For a relatively low cost, the seller gains an understanding of the price that the property will command. The buyer gains an understanding of what they will have to pay to purchase it.
An exterior BPO is typically used when the real estate broker cannot gain access to the interior. This can be common when a property is going through the foreclosure process because the owner is not cooperating with anyone trying to take their home away from them.
One of the few times that a lender will use a BPO instead of requiring an appraisal is for a short sale. This is because the lender is already going to lose money and a BPO will reduce the loss. BPOs are also ordered by banks, mortgage loan companies, and asset management companies for several other reasons:
- Home purchases.
- Home loan refinances.
- Bank-owned property sale of a foreclosed property.
- Property value estimate.
BPOs are also commonly used by owners, buyers, and investors in these situations:
- Valuation for a short sale or foreclosure purchase.
- A homeowner going the route of ‘For Sale By Owner.’
- Portfolio and asset valuation.
- Nonperforming private loans.
- Reperforming private loans.
- Selling private loans.
- PMI requests or appeals.
- Other reasons as they arise.
BPOs have many uses in the real estate industry. The one thing to keep in mind is that a BPO cannot always be substituted for an official appraisal. BPOs are not legal in all states. Most lenders require a home appraisal to determine the home’s property value before closing a loan.
What else do you think buyers, sellers, and investors need to know about BPOs? Please share your insights and experiences by leaving a comment.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to firstname.lastname@example.org.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.