In real estate, broker price opinions (BPOs) often go with foreclosures and short sales. Other companies, such as relocation firms, may also order BPOs.
A BPO is a valuation of a home made by a real estate professional. It involves a process much like a real estate appraisal. It does not have as many steps, though, and is not as complex. This makes it a cheaper option.
Companies and banks will hire a real estate broker to prepare an opinion of value for a given piece of real estate. The broker's representative, often a real estate agent, compares at least three similar properties that have sold recently to the one in question
The broker comes up with a value range for the property. They will then adjust the number within that value based on the condition and other factors. For example, an added pool or newer roof will raise the value.
The final result is the broker's opinion (and only an opinion) of market value.
- For an interior BPO, the agent will take photos and assess the value of a home's interior, as well as the roof and appliances.
- For a drive-by BPO, the agent will assess the home only by its outside, either in person, through photos, or by using software.
- Banks often order a BPO for foreclosures or short sales, though they don't have to use the final number as the true market value.
- Brokers who do BPOs are often not appraisers, and their valuations may not take into account a neighborhood or market that they don't know well.
What Are the Types of BPOs?
There are types of standard BPOs exist. Brokers may either perform an interior BPO and a drive-by BPO.
For an interior BPO, the agent will take photos and assess the entire inside of a home. This may include the appliances, roof, and other parts of the property,
For a drive-by BPO, the agent will assess the home only by its outside. The inside of the home isn't looked at in this case.
Sometimes, an agent doing a drive-by BPO may not even look at the house in person. They may not even live in the same country as the home being sold.
Instead, agents may just rely on photos of the home already posted on a multiple listing service (MLS) website. The agent would then place the market value by numbers alone. This is often done by looking at comparable sales in the same area within the past three months.
Sometimes, a drive-by BPO is referred to as a desktop BPO. This means that the agent has used specialized software to value a house.
This software works like the types of values estimated by real estate websites such as the Zillow Zestimate. It can help to place the value within a certain range, and that range is often accurate. But it does not replace an interior inspection or a full appraisal.
Why Do Banks Order BPOs?
There are two common reasons banks order a BPO valuation. They are often used for a home in foreclosure or a short sale.
Banks might request a BPO from two real estate companies. They will expect to get two different numbers back, which provides a range for the value, rather than a single number.
This ballpark estimate helps the bank avoid inaccurate BPO values sometimes placed on short sales by unethical agents.
Banks do not have to accept the BPO value as true market value. A bank can use the BPO value as a guideline. It might also use other factors, such as renovations or the local market, to support a higher sales price in an effort to offset a loss.
Can Banks Change the Value After a BPO?
When a bank asks for a higher price for a home sale, some agents or buyers may blame the BPO agent for assigning an elevated value. But a high price doesn't always reflect the BPO value. In many cases, the bank may have just decided to ask for more money.
Most often, the only people who hope the BPO is low are the buyers of a short sale. But bank is not required to do a short sale. A low valuation does not mean the bank will have to sell at that price.
If you are applying for a mortgage, your lender must provide you with a copy of any valuation of the property. This includes BPOs.
Banks often use the BPO as extra information. There are many automatic valuation software systems that banks can use. A BPO might only be a way to test or support the price that the software has given.
Past Uses of a BPO
Broker price opinions can be controversial. This is often true if the agent doing the BPO doesn't know the neighborhood well or has no past experience appraising a property.
They are still useful to banks, though. BPOs may offer a less complete or accurate opinion of value. But they also cost much less than a full appraisal. BPOs are as cheap as $30.
During the market downturn from 2006 to 2011, there were rising rates of foreclosures. As a result, banks had more and more need for BPOs. Often, bank guidelines required a BPO. But banks may have used other criteria to decide on a sales price, especially for short sales.
At the same time, more experienced agents thought BPOs were menial work with a low payout. The task went to newer agents who would take lower pay. They also had less experience valuing homes, leading to more controversial results. As a result, federal and state authorities passed laws to address the use of BPOs.