A Broker Price Opinion (BPO) is comparable to an appraisal in that it is performed by a real estate broker (or agent) rather than a lender’s appraiser. A BPO is similar to a comparative market analysis (CMA), which is used by real estate agents to recommend a listing price to sellers. It all boils down to a BPO being another tool for determining a property’s current fair market value.
A BPO, like an appraisal or a CMA, is based on a list of comparable properties, their last sales dates, and how they differ from the property under consideration, either for the better or for the worse. Furthermore, subjective elements are far more influential in a BPO than an appraisal.
It’s done by a real estate broker or agent who has a thorough understanding of the local real estate market. To put it another way, the broker’s viewpoint.
The Foundation of a Broker Price Opinion (BPO)
The broker uses their knowledge to assess the property’s dollar value based on a variety of factors. It’s better to have a BPO done by a broker who knows the local real estate market.
BPOs are frequently far less expensive than appraisals. A BPO will likely cost between $50 and $100, to begin with. The cost of an appraisal might range from $350 to $500 or more. Aside from the price, one advantage of a BPO over an appraisal is that an experienced and educated broker can typically provide anticipated repair costs. A BPO is not to be confused with a house inspection. A professional home inspection is significantly more thorough in its search for damage and necessary repairs.
Because an appraisal comes from an uninterested third party, a lender will often need an appraisal rather than a BPO. A realtor may have a strong interest in the house being appraised as well as the neighborhood’s overall worth.
Two Main Types of Broker Price Opinion (BPOs)
The Drive-by or Exterior BPO and the Interior BPO are the two most common BPOs. Most of the time, you’ll need an Interior BPO. It is the more all-encompassing of the two. An interior BPO will include everything from an exterior BPO, but the inside will have a lot more information.
A minimum of three images from the property under consideration should be included in an exterior BPO. One photo of the address and front of the house, usually taken from the street. Another shot looking down the street to give you a sense of the area. Also included are one or more additional exterior shots of the house demonstrating its general state of decay.
The broker will look up comprehensive information about the property in tax records, such as the description, square footage, lot size, age, and so on. The majority of BPOs also include data on three comparable property transactions and three comparable listings. The broker will search up the homes on MLS to see when and for how much they were recently sold.
When to Use a BPO
There are numerous occasions where a BPO is preferable to an appraisal. One notable difference between the two is that an appraiser may be looking at it from the standpoint of a lender’s cautious risk rather than a simple real estate transaction. A BPO is very important in the early stages of a real estate deal. It may be requested by the seller, a prospective buyer, or a private lender. The seller gains an understanding of the price that the property will command for a relatively low cost. The customer gets a better idea of how much it will cost them to buy it.
When a real estate broker is unable to gain access to the interior, an exterior BPO is used. When a property is in foreclosure, this is typically because the owner refuses to cooperate with anyone attempting to take their home away from them.
A short sale is one of the few situations when a lender will use a BPO instead of an appraisal. This is because the lender is already going to lose money, and a BPO will help to mitigate that loss. Banks, mortgage loan companies, and asset management firms also use BPOs for a variety of reasons:
- Purchase of a home.
- Refinancing a home loan.
- The sale of a foreclosed property by a bank.
- Estimated property value.
In these instances, owners, purchasers, and investors frequently use BPOs:
For a short sale or foreclosure acquisition, a valuation is required.
A homeowner who chooses the ‘For Sale By Owner’ route.
Valuation of a portfolio and assets.
Private loans that have defaulted.
Private loans that have defaulted.
Private loans are being sold.
Requests for PMI or appeals.
Other factors will be considered when they occur.
BPOs are useful in the real estate industry for a variety of reasons. One thing to remember is that a BPO cannot always be used in place of a formal appraisal. BPOs are not permitted in every state. Before finalizing a loan, most lenders require a house assessment to determine the property worth of the home.
What more should buyers, sellers, and investors know about BPOs, in your opinion? Please leave a remark with your thoughts and experiences.