The Broker Priced Opinion
What is it, and why does it matter?
In real estate, broker priced opinions (BPOs) are often associated with foreclosures and short sales, but other companies such as relocation firms also order BPOs. A BPO involves a process very similar to a real estate appraisal, although it is not as involved nor complicated.
Companies and banks typically hire a real estate broker to prepare an opinion of value for a given piece of real estate. The broker's representative, generally a real estate agent, compares a minimum of three recently sold, similar properties to the property needing assessment.
The broker then comes up with a range of values and adjusts that number for variables such as an added pool or a newer roof. The final analysis results in an opinion (and only an opinion) of market value.
Two Standard Types of BPOs
Two types of standard BPOs exist; an interior BPO, and a drive-by BPO. The interior BPO involves photographing and assessing the home's interior. A drive-by BPO involves assessing the home only by its exterior and is not much more useful than a hastily conducted interior BPO.
The agent may not have even personally inspected the home's exterior and may instead just rely on the home's photos already posted on a multiple listing service (MLS) website. Additionally, the interior of the home isn't inspected during a drive-by BPO. In this case, market value is often estimated by numbers alone—usually comparable sales within the past 3 months.
Sometimes a drive-by BPO is referred to as a desktop BPO, meaning specialized software has been used to estimate a value. This works similarly to the types of values estimated by some popular websites such as the Zillow Zestimate. It can be accurate to a certain degree but does not take the place of an interior inspection, nor a full-blown appraisal.
Why Banks Order BPOs
The two most common reasons banks order a BPO valuation are for a home in foreclosure or a short sale. Banks might request a BPO from two separate real estate companies. This ballpark estimate for a range of values is designed to help the bank avoid inaccurate BPO values sometimes placed on short sales by unethical agents.
Banks have no requirement to accept the BPO value as true market value. A bank can use the BPO value as a guideline but might use other evidence to support a higher sales price to try to offset a loss.
Banks May Change the Value
When a bank demands a higher price for a home, it doesn't necessarily mean the BPO value is that price. Some agents make this mistake, blaming the BPO agent for assigning an elevated value when it was the bank that decided to ask for a higher price.
Generally, the only people that hope the BPO is low are the buyers of a short sale. A bank is not required to do a short sale, so a low valuation does not mean the bank will automatically sell at that price, which many agents and would-be buyers don't understand.
Banks often use the BPO as additional information. Many automatic valuation software systems are available; a BPO might be used as only a supplemental report to test or support the software's conclusion.
Past Uses of a BPO
Broker price opinions are sometimes controversial, especially if the agent preparing the BPO has little experience or knowledge about the neighborhood or appraisal techniques. While BPOs may offer a less-refined or accurate opinion of value, they also typically cost much less than a full-blown appraisal.
During the market downturn from 2006 to 2011, banks were paying between $50 and $75 for a BPO. This approach often led to problems, because banks were giving this task to new agents because seasoned agents believed it to be a menial task with a low payout.
It was not unusual for a part-time agent to pull up to a seller's house, leave her children strapped in their car seats, and dash into the home—to quickly shoot a few photos with her cell phone and run out.
At that time, the banks didn't seem to place as much emphasis on the BPO because it wasn't always used to determine value. Most likely, bank guidelines required a BPO, but banks use other criteria to determine a sales price, especially for short sales.