You’re working in your yard one day when a car stops in front of your home and starts taking photos. When you ask what’s going on, the individual, who says she’s a real estate broker, explains that the photos of the exterior of your house are for a BPO – a broker price opinion – for your lender.
You’re not planning to put your house on the market, and you haven’t applied for refinancing with your lender. Is this BPO something to worry about?
While it’s always good to be wary of people taking photos of your home for security reasons, especially when it’s not on the market, a BPO is nothing to fear, and the photos are just a part of the process.
What Is a BPO?
A broker price opinion is an estimated property value that is often determined by a real estate broker or qualified agent. It serves as an alternative to a complete property appraisal and is often ordered by financial institutions, like the lender that holds the mortgage on the property. When a BPO is ordered by a financial institution, it’s possible for the homeowner to be unaware of the valuation.
An appraisal is also an estimate of a property’s market value, but it is performed by a certified appraiser and is typically more expensive than a BPO. In cases where an appraisal isn’t necessary, a bank or other mortgage lender may opt for a BPO because it’s a cheaper alternative. BPOs are often associated with short sales or foreclosures – to confirm that the value is in fact lower than the debt owed on the property – but they can also used to trade mortgages on the secondary market or other even situations when a mortgage is in good standing.
“A Broker Price Opinion gives you a property’s anticipated sale price, while an appraisal gives you its market value at a specific point of time,” Tom O’Grady, CEO of Pro Teck Valuation Services, wrote in an email. “Appraisals are considered the ‘gold standard’ in valuation because it is the opinion of a credentialed Real Estate Appraiser, with the required detail and stringent regulations surrounding their creation.”
Because a BPO is calculated by a real estate agent, salesperson or broker rather than an appraiser, the professional’s experience comes from determining the home value and assigning the right asking sale price. Licensing courses for agents and brokers typically don’t focus exclusively on reading the local market and valuating a property like appraisal courses do, but the skill is still a part of the job.
The benefit of a BPO over an appraisal, when it’s applicable, is that it costs less and can be completed faster. Luke Frederick, executive vice president of customer experience for Clear Capital, a valuation services company that provides BPOs, says a BPO typically takes between one and five business days to complete, while an appraisal is more likely to require between seven and 10 business days.
In terms of cost, Angie’s List reports the average home appraisal costs between $300 and $400, though Frederick notes an appraisal can climb to $800 or more, depending on the market and individual property. A BPO, on the other hand, is more likely to cost between $100 and $200, Frederick says, which creates financial incentive when a full appraisal isn’t necessary.
The reason most consumers don’t come into contact with a BPO is because an appraisal is required for standard procedures, like getting a mortgage for a home purchase. “For most origination transactions, an appraisal is needed by law,” O’Grady says. “If a homeowner has another need, a valuation for settling an estate for example, a BPO can used as an economical alternative to an appraisal.”
How Is a BPO Calculated?
A BPO is calculated similarly to an appraisal by considering factors such as:
- Property size.
- Structure size.
- Demand in the area.
- Information from three recent sales in the area of similar properties.
Depending on the request, a broker or agent can conduct an interior or exterior BPO, sometimes called a drive-by BPO. An interior BPO requires photos inside the home and is more in-depth, with details about the condition of the interior such as whether the home has been well cared for, if recent renovations keep it up to date or if there are signs of neglect like damaged walls or mold. But an exterior BPO makes the call purely based the exterior condition and the basic information that can be found on the local multiple listing service or property records, including the number or rooms and if there are additional structures on the property, among other details. An order for an exterior BPO may be why you aren’t informed of the valuation but you see the broker taking photos outside your house, Frederick says.
As is the case with an appraisal, a major factor for determining value for a BPO is based on recent deals. “The next step is to determine or find properties that have listed or sold in the subject market area that are similar to the subject property in their attributes,” Frederick says.
An appraisal is also likely to take into account what the value would be at the property’s highest and best use, the cost to maintain or revive the property and, occasionally, potential income value, or money you would make from rent if you took in tenants. While a BPO can take potential income into account, Frederick says including any of these additional factors is far less common.
Who Needs a BPO?
In most cases, a broker price opinion is ordered by a financial institution, not an individual homeowner. BPOs can be used to:
Provide a more recent value amount when selling mortgages on the secondary market.
Determine the amount of equity a homeowner has in a home to see if a private mortgage insurance requirement can be removed.
Decide if a short sale or foreclosure is appropriate based on the value as it compares to the debt amount.
Settle the estate of a homeowner who has died.
BPO Alternative for Consumers: Comparative Market Analysis
If you’re a homeowner who wants to know what your house is worth but don’t want to pay for a complete appraisal, a comparative market analysis is likely a better option than a BPO.
Also performed by a real estate agent or broker, a CMA provides much of the same information without the formalities needed for an appraisal or BPO.
The major difference is that a BPO is typically overseen by a larger valuation company or firm, like Clear Capital or Pro Teck, which further checks the result for quality assurance.
With a CMA, homeowners can get the same expertise financial institutions get with a BPO. The big benefit, however, is that many of the same agents and brokers who calculate BPOs through valuation companies provide market analyses for free to help a potential seller know their property’s worth, and they are a part of the initial offer or an easy request when you go to meet with an agent to see if you’d like to work with him or her.
Real estate agents “are very familiar with their local market activity and can be a great resource for providing a property’s likely sale price supported by competing sales and listings from the subject property’s market,” O’Grady says.