The listing price. It’s the first thing many look at when shopping for real estate. We want to be sure the property we have our eye on is within our budget. Ever wonder how those listing prices are determined? Often, they’re determined by a broker price opinion, or “BPO” for short. A BPO is one of the real estate valuation tools used to determine a home’s value.
Please take a closer look at BPOs, how they’re determined, when they’re used, and why they differ from home appraisals.
Key takeaways:
- Broker price opinions (BPO) a real estate professional’s opinion of a property’s value. They are different from home appraisals.
- BPOs are often cheaper than home appraisals but are not legal in all 50 states.
- BPOs help determine a property’s listing price. Home appraisals determine a property’s fair market value.
- Home appraisals are legally required in the sale of real estate.
What is a broker price opinion (BPO)?
Bankrate defines a broker price opinion as “a real estate professional’s opinion of a property’s value.” In short, it’s a realtor’s opinion of value.
A BPO is a convenient way to assess a property’s estimated value and is typically used as part of the listing agreement when selling a house.
Lenders, mortgage companies, loss mitigation companies, or homeowners who want to refinance or sell their homes can request a BPO. And here’s why. They’re less expensive and quicker to obtain than a professional appraisal.
As a result, BPOs are often used during a:
- Short sale
- Foreclosure
- Private mortgage insurance (PMI) appeal requests
- Whole loan sale
BPOs are not legal in all 50 states. The National Association of Broker Price Opinion Professionals states that BPOs are not permitted in 23 states. So, be sure they’re legal in your state before you decide to get one.
How BPOs are determined
Determining a BPO is like conducting a comparative market analysis (CMA).
A broker or licensed real estate agent relies on several key factors to determine the broker price opinion of a property. These factors include:
- Similar properties
- Age of the home
- Size of property
- Neighborhood
- Zoning
- Condition of the property
The real estate broker or agent reviews these factors and uses their expertise to assign a dollar amount to the property. This dollar amount becomes the listing price.
The two types of BPOs
There are two types of broker price opinions: internal and external. They have some distinct differences, which we’ve highlighted below.
Internal BPO
An internal broker price opinion occurs when a real estate broker or agent goes into the home to conduct the valuation. They evaluate the home’s condition, take measurements to get accurate square footage, verify the number of rooms, and personally assess the property’s features. In short, an internal BPO is when a real estate broker goes into the property to evaluate it.
External BPO
An external broker price opinion occurs when a real estate broker or agent assesses a property’s value from the outside. That’s why they’re often referred to as drive-by BPOs. They may look at the home’s comps and other official documents to conduct the valuation. External BPOs are more accessible and common than internal BPOs but are less accurate.
BPOs vs. appraisals
Broker price opinions and home appraisals are home valuation tools with the same goal – determining a property’s market value. However, they are some key differences.
BPOs
As mentioned above, broker price opinions are a real estate professional’s opinion of a property. They’re determined by comps and the property’s condition and details. BPOs are not required to conform to Uniform Standards of Professional Appraisal Practice (USPAP) or state appraisal law.
BPOs are best for:
- Short sales, foreclosures, and real estate owned (REO)
- Portfolio and asset valuation
- Home equity line of credit (HELOC) and other home equity loans under $250,000
- To determine a property’s listing price
BPOs are not typically allowed whenever a mortgage loan is involved.
Appraisals
Investopedia says a home appraisal is “an unbiased professional opinion of a home’s value and is required whenever a mortgage is involved in buying, refinancing, or selling a property.” However, some government refinancing programs, like FHA streamline, do not require appraisals.
When you request a full appraisal, a certified appraiser examines the interior and exterior of the property. They also examine the site, adjoining sites, neighborhood, recent sales, and local real estate market to determine the property’s market value. It’s essentially a CMA on steroids. Home appraisals help ensure homebuyers, and ultimately mortgage lenders, aren’t overpaying for a property.
Most licensed appraisers use the Uniform Residential Appraisal Report from Fannie Mae when appraising single-family homes. The report includes the following:
- A street map showing the subject property and comparable sales
- An exterior building sketch along with photographs of the home’s front, back, and street
- Front exterior photographs of each comparable property
- An explanation of how the appraiser calculated the home’s square footage
- Market sales data, public lands records, tax records, and other pertinent information used to determine the home’s fair market value
Home appraisals are best for:
- New home purchases
- HELOC and other home equity loans over $250,000
- Commercial real estate purchases
Real estate appraisals are often the first step when closing on a home and can sometimes alter a property’s sale price, especially when the appraisal comes in lower than the selling price.
How to get a BPO
Getting a BPO is very easy.
Homeowners and prospective homebuyers can order a BPO from a broker price opinion company. They can also contact the National Association of Broker Price Opinion Professionals for a list of certified BPO vendors.
The average price range for a BPO is $50 to $300.
However, be sure they’re legal in your state before ordering a BPO.
Is a BPO right for you?
It depends on your unique situation. Broker price opinions make the most sense when determining the value of a foreclosure or short sale. They’re also a convenient way for real estate investors to assess the value of their portfolios and assets. However, they are not legal in all 50 states. And, if you’re a homebuyer, your mortgage lender will still require a home appraisal. Talk to your real estate agent to determine if a BPO suits your situation.
The bottom line
Anyone who wants to assess the value of a property quickly can request a broker price opinion. It’s as easy as contacting a certified BPO vendor and paying their fee.
BPOs are a real estate professional’s opinion of a property’s value and are often used to determine a listing price. They’re also used in short sales, foreclosures, and portfolio valuation. However, they are not legal in all 50 states, so be sure they’re legal in your state before requesting a BPO.
If you’re a homebuyer, you must obtain a full home appraisal before closing on a property. Unlike a BPO, a home appraisal is a detailed valuation that adheres to USPAP and state laws.
Talk to your real estate broker or mortgage lender to learn about the best option for your situation.
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