What is a BPO in Real Estate?

What Is a Broker Price Opinion?

A broker’s price opinion, or BPO, is very similar to an appraisal in that its primary goal is to state the value of a specific property or home. It is the estimated price of a home, based on the opinion of a broker or real estate agent. Despite the name, BPOs don’t have to be done by a broker. However, they must be completed by a licensed real estate agent. Broker price opinions can sometimes be called a broker opinion of value, or BOV.

BPOs are a great alternative to appraisals for those interested in getting a good idea of what their property may be worth without the expensive fees of obtaining an appraisal. That being said, not all states allow BPOs, and some have strict limits for their use. For example, BPOs are only allowed during the listing process in some states. They might even prohibit agents from charging a fee for this service. In other states, agents can market and sell BPOs as a service.

What Are BPOs Used For In Real Estate?

In many instances, BPOs are done by listing agents when they are hired to sell a home. This is often the first step in helping clients decide on a strong listing price. It’s essential to start with the right listing price, as aiming too high can result in a house sitting on the market too long, and too low will lose the owner money. It’s best to choose an agent familiar with the specific neighborhood or market where the property is located, as pricing and valuation can vary by area.

Homeowners can also use BPOs to decide whether selling is a good idea or not. They can use this rough estimate of their properties value to determine potential equity. In other instances, homeowners might seek a BPO to decide whether to refinance, settle legal matters, or eliminate private mortgage insurance.

Typically, lending institutions require appraisals for mortgage approval, but there are sometimes when a bank might consider a BPO. For example, lenders might use a BPO in the case of short sales, foreclosure, or refinance.  In this case, the lender will contact a BPO company to do a BPO.  The BPO company then contacts a licensed real estate agent to determine the home’s value.

BPOs In Commercial Real Estate

 In commercial real estate, BPOs can be more advanced to help owners figure out what their property is worth and whether selling now is the right move. Agents often put them together in hopes of securing a new client. BPOs in commercial real estate is sometimes as detailed and lengthy as appraisals. They can include the estimated value, comparable properties, market competition, and market data. This extra information can give owners the entire picture when it comes to deciding whether to sell or not.

 How to do a BPO?

The first step for conducting a BPO is to check out the property. Often, agents will walk through the property to check out its condition and unique features. Sometimes, an external BPO is all that’s necessary, which is done by only looking at the property from the outside. During this time, the agent can take pictures for reference and include them in the report.

Then the agent needs to compare the property to similar ones in the same market. This is done through a comparative market analysis (CMA). BPOs are based on comparative market data as well as predictive data like market trends and price fluctuations. When it comes to comparing a property, key factors are lot size, number of bedrooms, condition of the home, special features, surrounding area, and recent nearby sales. Comps should be properties that have sold within the last six months.

BPOs vs. Appraisals

Those familiar with real estate might think that this process sounds just like that of an appraisal. However, while appraisals and BPOs are quite similar, there are some key differences that set them apart.

For starters, an appraisal must be conducted by a licensed real estate appraiser. An agent can become an appraiser with advanced training. However, they cannot act as both at the same time. They are obligated to follow the strict rules laid out by the Uniform Standards for Professional Appraisal Practice. Because of this, appraisals are always done by a third party that has no stakes in the outcome of the appraisal and no conflicts of interest.

There are certain situations where appraisals are required and cannot be substituted with a BPO. Mortgage lenders always require a licensed appraisal of a property before final approval on the purchase of a home. Appraisals follow stricter guidelines than BPOs and are more comprehensive. This also means that appraisals are more expensive than BPOs.

While mortgage lenders require an appraisal, owners & asset management companies opt for BPOs in many other circumstances in part because they are less expensive. BPOs are also less detailed and less regulated.

Comparing a BPO to the Market Value

The market value of a home is the price that a home will sell for. This amount is not determined by a BPO agent or appraiser but rather by the market and buyers. Therefore, it’s impossible to know the market value of a property until after its sale.

While a BPO can help a seller determine their listing price, the buyer and seller must come together to agree on a fair market value. At this point, the lender will require an appraisal to make sure that the house is worth at least as much as the determined sales price.

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