BPO – Broker’s Price Opinion: The estimated value of property as determined by a real estate agent.
BPO – Broker’s Price Opinion: The process by which a sales agent assesses the prospective selling price or estimated value of a real estate property. A BPO is generally used when a lending institution deems the cost and delay of an appraisal unwarranted.
The Value of a Broker Price Opinion (BPO)
The Broker Price Opinion (BPO) is a tool used by banks and mortgage services to assess the value of properties when they believe the cost and delay of an appraisal are unnecessary. Real estate agents receive a BPO request from a bank, mortgage servicer or loss mitigation company. The agent will either conduct a Drive-By BPO or an Internal BPO.
In certain states, BPOs have proved problematic since agents are not permitted to charge a fee for assessment services, as appraisers are. The industry, however, is changing as more appraisers choose not to conduct assessment since fees generally only range from $75 to $150.
According to the Federal Reserve, a BPO is “an estimate of the probable sales or listing price of the subject property provided by a real estate broker, sales agent, or sales person. A BPO generally provides a varying level of detail about a property’s condition, market, and neighborhood, as well as comparable sales or listings. A BPO is not by itself an appraisal or evaluation, but could be used for monitoring the collateral value of an existing loan, when deemed appropriate. Further, the Dodd-Frank Act provides ‘[I]n conjunction with the purchase of a consumer’s principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of loan origination of a residential mortgage loan secured by such piece of property.’”
The Housing and Urban Development Department (HUD) has proposed amending the statute governing appraisal of HUD REO properties “to clarify that the list price for HUD REO properties may be established utilizing one or more evaluation tools. In addition to aligning requirements for REO appraisers with requirements for appraisers to ensure consistency, the rule proposed expanding valuation methods available to include alternative methods commonly used in the real estate industry, such as Broker Price Opinions (BPO) and Automated Valuation Models (AVM).”
Though a BPO is less formal than a real estate appraisal, it does take into account the following factors to determine the value of a property:
- Characteristics of the home
- Characteristics of the neighborhood
- Cost associated with getting the property ready for sale
- Damage or necessary improvements to the home
- Neighborhood property values
- Zoning law compliance
Deciding whether to have a real estate appraisal or a BPO depends on the intended purpose of the assessment.
According to First American Financial Corporation, “Appraisals are typically more comprehensive than a broker price opinion. In addition, BPOs can be performed more quickly since they account for less data. These may be used by banks for deciding on a listing price when selling a home, finding an estate price or establishing the current value for an insurance policy. Similar to an appraisal, sellers select a broker who is familiar with the neighborhood because home values tend to vary depending on location.
“BPOs are typically done as a drive-by or occasionally as an internal walkthrough. Both forms of BPO examine the year the home was built, lot size, number of rooms, gross living area, property condition, the surrounding neighborhood and information about the number of homes for sale in the area. These reports also need to include the number of foreclosures in the surrounding area.
“Although BPOs may be appropriate in some cases, an appraisal accounts for all the data and forms a more credible picture of a property’s value. Appraisers typically walk through the house, as well as compile data about the property and surrounding neighborhood. A real estate appraisal also includes public records, diagrams and photos. Appraisers are hired by lenders to form an unbiased opinion of a home’s value. They also take the property’s age, structural features, upgrades, condition and any required repairs into account.”