What is a BPO?
There are many real estate terms that both home buyers and sellers will hear quite often. One such term is a broker price opinion or BPO for short.
What does a broker price opinion mean? Understanding the role of broker price opinions in various real estate transactions can help buyers and sellers make informed decisions.
The definition of a broker pricing opinion is quite simple. It is an evaluation done by a real estate professional to set the asking price for a home, condominium, land, or another type of real estate.
A broker price opinion is a report provided to a seller, buyer, or lender with the real estate agent’s view of the current market value.
Lenders often request a broker pricing opinion for potential short sales or foreclosures. These opinions are very similar to a comparative market analysis and are frequently used interchangeably with the terms.
Agents use a comparative market analysis (CMA) to obtain a potential listing, while lenders usually request brokers’ price opinions.
Mortgage lenders may also use a broker’s opinion of value to evaluate whether to give a loan modification.
However, broker price opinions don’t just have to be requested by lenders. It’s just been a common term by those used in the banking industry.
Tens of thousands of real estate agents give home sellers broker price opinions daily.
Over my nearly forty year real estate career, there have been numerous times when I have been asked to perform this service for a mortgage lender. Mortgage lenders often request a broker price opinion to assess the value of a property during the loan modification or foreclosure process. This is exactly why I have been asked to do most of them. In loss mitigation, broker price opinions provide a quick and cost-effective way to evaluate properties at risk of foreclosure. Whether refinancing a mortgage or considering a short sale, they can influence critical financial decisions.
Let’s look at everything you need to know about a BPO.
Essential Facts and Figures Worth Knowing
1. A broker price opinion is an estimate of the value of a property conducted by a licensed real estate broker or agent.
2. BPOs are commonly used by financial institutions, mortgage lenders, and investors to assess a property’s market value.
3. The opinions given in a BPO are based on the broker’s analysis of comparable properties, market conditions, and other relevant factors.
4. BPOs can be used for various purposes, including loan underwriting, short sales, foreclosure proceedings, and property tax assessments.
5. While not as comprehensive as a formal appraisal, BPOs provide a cost-effective alternative for determining property values in certain situations.
6. The BPO industry is estimated to be worth over $1.5 billion globally.
7. More than 70% of real estate agents use BPOs for property valuation.
8. On average, BPO reports are completed within 48 hours of inspection.
9. The accuracy rates exceed 90% in predicting property values within a specific range.
10. Over 60% of lenders rely on these estimates for making informed lending decisions.
11. A real estate broker must follow general property valuation guidelines.
How Are Broker Price Opinions Formulated?
How does a broker price opinion work? A market analysis is a critical step in formulating a BPO.
With a comparative market analysis, a real estate agent will look at comparable properties most similar to the subject. An agent performing a BPO should be familiar with the local housing market.
Without local real estate market expertise, a real estate agent would have difficulty choosing the most accurate comps or comparable sales.
To create an accurate BPO, agents will look at some essential characteristics of each property.
Some of the more vital factors determining a broker pricing opinion include the property size, location, number of bedrooms and baths, age, condition, amenities, and land on which the property sits.
The subject property will be compared against similar properties sold to form the basis of the BPO. An agent may also look at homes for sale, contingent, and pending properties, but these will hold less weight in the opinion of value. Recent sales are always the most vital data points.
Once the work is completed, property owners will receive a BPO report. The report will show how property values were determined. There is often a suggested listing price and probable sale price, and the broker price opinion is often part of the listing agreement.
A buyer’s agent can also use a BPO to determine a reasonable purchase price for a home. A broker price opinion offers a unique property valuation approach, especially when a full appraisal is not feasible.
Interior BPO vs. Exterior BPO
There are two types of broker pricing opinions, often called interior and exterior BPOs.
An internal broker price opinion is usually far more accurate because an agent can view the inside of the property. With an internal BPO, agents can get a feel for the floor plan’s condition, amenities, and utility.
Without seeing inside, many things could throw off how accurate the BPO will be.
An exterior or drive-by BPO will be far less accurate. There are far too many variables inside a home to give a precise valuation. Curbside inspections don’t give someone the whole picture. You might as well rely on a Zillow home value estimate. The chances of home values being accurate decrease significantly with external BPOs.
You can’t always judge a book by its cover in real estate. The vast majority of exterior BPOs are requested by lenders looking to understand the value of one of their assets.
A mortgage company is looking for a quick opinion and understands that this valuation method is far less accurate.
Greg Smith, Boulder Home Source, The RE/Max Collection, offered advice on an exterior BPO.
“Performing a Broker Price Opinion (BPO) offers an estimate relying on what can be seen from the outside and studying the neighborhood. However, it lacks capturing the features that can significantly influence a home’s actual worth.
When you don’t consider the inside conditions, improvements and upgrades significantly hinder determining a property’s value. Sometimes, it’s better; sometimes, it’s worse. Overvaluing a home can harm the seller and the buyer, who will not get the home’s total worth. Simply evaluating a house from the outside does not accurately represent the home’s actual value.
Real Estate Appraisals and BPOs Are Different
A home appraisal and broker price opinion are very different from one another.
A licensed professional with extensive experience in valuation methodology performs a real estate appraisal. Certified appraisers must pass a national exam and follow standardized, uniform valuation techniques, referred to as uniform standards of professional appraisal practice.
Real Estate appraisers work for the lender. They have no conflicts of interest, which can differ from a real estate agent. They are considered unbiased third parties.
Real estate agents earn a commission based on the sales price. Brokers have less regulation and do not have to meet any standards when creating these reports.
Appraisers, on the other hand, use a standardized report.
Look at comparative market analysis vs. appraisal for a more detailed overview. As mentioned previously, a CMA and BPO are pretty similar. While technically different, both use methods to determine the property’s value.
Here are all the things an appraiser will be looking at.
Understanding the Legal Landscape of BPOs
The legal and regulatory landscape surrounding Broker Price Opinions (BPOs) is complex and varied across different states.
This is because BPOs, while a cost-effective alternative to traditional appraisals, are not universally accepted for all real estate transactions.
For instance, BPOs are not accepted for mortgages sold to Fannie Mae or Freddie Mac, nor for loans insured by government entities such as the FHA, VA, or USDA.
This limitation shows the importance of understanding your state’s specific legalities and restrictions associated with BPOs.
Accepting pricing opinions for particular transactions, such as borrower-requested PMI cancellations on loans owned by Fannie Mae and Freddie Mac, highlights the application of BPOs in the real estate market. Real estate professionals and consumers must navigate these regulations carefully. This ensures compliance while leveraging BPOs’ benefits where possible.
To learn more about the legal considerations and state-specific regulations governing BPOs, you can look at resources like the National Association of BPO Professionals, which can provide valuable insights.
Cost of a BPO vs. an Appraisal
The cost of a BPO and a full-blown real estate appraisal is quite different. When a BPO is done for a potential home seller, it is usually free.
A real estate agent does a complimentary analysis to build a relationship and potentially get a home to sell at some point.
The cost is minimal when a BPO is done for a lending institution. It will typically be around $50-$150.
On the other hand, a real estate appraisal typically costs $300-$500. The price often depends on the home’s size, the appraisal’s complexity, and what state the property is located in.
In The Mortgage Industry Appraisals Rule
A real estate appraisal is the go-to evaluation method when a borrower gets a mortgage loan to purchase a home.
A broker price opinion is unacceptable for mortgages sold to Fannie Mae or Freddie Mac.
Government institutions such as the Department of Veterans Affairs for VA loans, the Federal Housing Administration for FHA loans, and the Department of Agriculture for USDA loans will not accept a BPO when lending money.
The Dodd-Frank Act prohibits lenders from using a broker pricing opinion instead of an appraisal for a residential loan. A licensed appraiser will require a full appraisal to determine a property’s fair market value.
Broker’s Price Opinions Are Best For Getting a Quick Value
Brokers commonly use a pricing opinion when there are more short sales and foreclosures. Missed mortgage payments will trigger the request.
When borrowers fall behind on their mortgages, a lender will request a broker price opinion to understand the present value quickly.
It would help them determine the next steps in what to do with a loan on a specific property.
Some other common uses for getting a BPO include getting rid of your private mortgage insurance (PMI), whether refinancing makes sense, or when a couple is divorcing.
How to Get a Broker Pricing Opinion?
You can call a local real estate agent to get a BPO done on your property. This is the most common method. Most real estate agents will perform this service for free in hopes of getting your business at some point.
You could also do a Google search for broker price opinions near me. The results will show agents willing to provide this service.
There are also broker price opinion companies that specialize in BPO orders. Buyers and sellers can both hire one of the following companies for BPO work:
- Equator
- LRES
- Residential Real Estate Review
- Clear Capital
- Pro Teck Valuation Intelligence
The cost of completing a BPO with one of these companies will range from fifty to three hundred fifty dollars.
Pros and Cons of a BPO
Let’s have a final review of the advantages and disadvantages of a broker price opinion.
Pros of a BPO
- A BPO will give a buyer or seller an understanding of a price range for market value.
- BPOs can be done quickly to get a ballpark figure of value.
- A broker price opinion costs less than a real estate appraisal.
- A BPO can be used to get a value for removing PMI.
Cons of a BPO
- A BPO cannot be used as a substitute for an appraisal.
- BPOs cannot be used when a buyer is getting a home loan.
- Depending on who is doing it, a BPO might not be as accurate as an appraisal.
- Broker price opinions cannot be used when getting a home equity loan or refinancing.
FAQs
Here are some of the most frequently asked questions about BPOs and their answers.
How Accurate is a BPO?
A BPO is only as accurate as the person completing the work. Like anything else, a real estate agent with years of experience providing the estimated value of a property will usually be better than a newer, less trained agent.
What is The Difference Between a Broker’s Price Opinion and an Appraisal?
A real estate agent completes a broker price opinion, whereas a licensed appraiser conducts an appraisal. Both appraisers and real estate agents provide a home’s current value. But, a BPO is not the same as an appraisal.
What is The Difference Between a BPO and a CMA?
There is no difference. BPOs and CMAs have the same meaning and purpose. They both assess a property to arrive at its current value.
Final Thoughts
Broker pricing opinions (BPOs) are great for quickly evaluating a home. They help buyers and sellers make sound business decisions. A BPO is nothing more than an opinion worth repeating.
Pricing a home properly is a skill and an art. Some professionals have far more experience than others in this task. Keep this in mind when buying or selling a house. A broker’s opinion is just that—an opinion. It may not be the right one.
The use of broker price opinions is bound to continue as they serve a need in the market.
About the Author: Bill Gassett, a nationally recognized leader in his field, has provided information on a broker price opinion. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. For the past 38+ years, Bill has helped people move in and out of Metrowest towns.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
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