A BPO is used to find the market value of a property.
The Broker Price Opinion or BPO is a professional opinion of price of the subject property. The BPO states the market value of the house. How importance is that information? Here is an understanding of the basics of a BPO.
What is a BPO?
A BPO or Broker Price Opinion is a market value and not an appraisal. The estimated market value of a property as determined by a real estate broker or other qualified individual. One important element of the BPO is that it is designed to be free of influence by parties who have a vested interest in the transaction. Dan Parisi who is trained and experienced doing BPOs says, “Integrity is very important with a BPO because one of the key tenants is to be free of influence from the parties, but one of the parties is generally paying for the BPO service. And this is where the integrity of the broker to act and create an impartial report comes in.”
How is a BPO done?
A BPO should only be performed by a local area real estate professional “trusted advisor” that services the subject property vicinity. The BPO Specialist should provide as much information as available and reliable. Some of the factors that a broker will consider when pricing a property include: the value of similar surrounding properties, sales trends in the neighborhood, an estimate of any of the costs associated with getting the property ready for sale and/or the cost of any needed repairs. A BPO is based on the “as is” condition. If minor conditions exist and does not affect the livability of the property such as minor deferred maintenance, the BPO opinion of market value must reflect the existence of these conditions. It is important to get a home inspection to understand the condition of a property.
What are the two basic types of BPO?
There are two major categories of Broker Price Opinions, the Exterior BPO and the Internal BPO. The exterior or drive-by BPO reports are less expensive than the internal. The BPO agent needs to visit the property in person and take photos of the home and neighborhood, paying special attention to any obvious defects on the outside. They do all the research to establish a market price. The quality and time of the inquiry into the comparable property’s prices make the BPO a value to the client.
Some of the information needed to give a BPO price are the location, neighborhood, conformity to neighborhood and zoning, property type, style, approximate age, visual condition of all individual exterior features, whether it looks occupied, parking issues, lot size, estimated square feet, estimated room count, comments, three recent sold comparables with info, sometimes three currently listed comparable properties and many photos taken.
The internal BPO is definitely more involved and can also vary in tasks. The internal BPO requires contact with a homeowner and or a tenant to get inside the house to do the inspection and photos for the BPO. They may not be aware of the situation for which the BPO is ordered.
The interior BPO might require that you verify things like square footage and room count rather than estimate them. Some tasks of an internal BPO are individual room measurement, overall square footage measurement, inspection of interior features’ conditions, more thorough value adjustments in comparables, individual photos of interior damage, repair estimates and room count.
The local real estate market and property comparison is the hallmark of the BPO.
BPOs are designed to establish the market value of a subject property. The detailing of the subject property to other properties in the similar location, similar house details and sold in as near a timeframe are importance elements in a quality BPO. Comparing one area to another area will help you determine if there are different market forces. It is in the adjustments made to the comparing properties that make the BPO a quality way to establish the market value. The comparison process is the hard work of a BPO which makes it valuable to the client. The selection of comparables is what takes time because of the amount and quality of data. The sales comparison approach compares the price of similar properties recently sold in the marketplace. Comparable properties similar to the subject are selected and examined and the sale price is adjusted to account for differences between the comparables and the subject to determine the market value of the subject property.
“Integrity is very important with a BPO because one of the key tenants is to be free of influence from the parties, but one of the parties is generally paying for the BPO service. And this is where the integrity of the broker to act and create an impartial report comes in.”
Dan Parisi DRE #01923081 Licensed real estate broker
What is the different between a BPO and Appraisal?
In most states, only a licensed appraiser is authorized to offer a professional opinion as to the value of a property. A real estate broker will be asked to offer an opinion regarding the real estate market price. This is a fine distinction, but perfectly legal, as long as labeled as such.
Real estate appraisers determine property market value. A BPO determines a recommended property price. A “market valuation,” is the work of an appraiser.
In fact a disclaimer must appear on the BPO stating it is not an appraisal. Following is an example of a BPO disclaimer:
“Notwithstanding any preprinted language to the contrary, this is not an appraisal of the market value of the property. If an appraisal is desired, the services of a licensed or certified appraiser must be obtained.”
Why get a BPO?
Here are a few reasons why people, lenders and companies order BPOs.
| A lender notes that a homeowner has missed a payment. |
| The homeowner is doing a loan modification. A BPO may not be used for this purpose in some states. |
| A homeowner is trying to do a short sale. |
| The property owner wants to check to see if the PMI can be removed. A BPO may not be used for this purpose in some states. |
| A homeowner wants an opinion of value and wants more info than a CMA. |
| The mortgage loan is being sold in a portfolio and client wants to know current value. |
| A bank or REO has subject listed and wants picture of the current market. |
| A lender has an offer on an REO and wants a current value. |
| A homeowner is trying to refinance. A BPO may not be used for this purpose in some states. |
| A bank or BPO Company has ordered a 2nd or 3rd BPO to ensure accuracy of the first BPO. |
| Any person or company that has an interest in the property and wishes to know the current condition and or current market price of the property. |
Another reason to get a BPO is they can be based on “as-is” or “as-repaired”. This is a powerful insight into the property’s pricing plan. Is the Sacramento property worth repairing or just sell “as is”?
BPO’s are very detailed and in part offer probable values based on “as-is” and “as-repaired.”
Who gets a BPO?
BPOs are ordered by banks, lenders, REO companies, real estate investors, home owners, and any individual or enterprise that wants to know the condition, document the property with photos and have a real estate market price of a property.
Real estate consultants or real estate advisory services provide advice in part based on a BPO to clients on residential properties, how to access funds to buy real estate, property developers, land and specialty properties like care homes.
The lenders and companies that hire real estate brokers to do BPOs, or Broker Price Opinions, have very specific requirements. The scope of each BPO is set by the person or entity hiring the BPO professional to perform the Broker Price Opinions document.
Dan Parisi is C-REPS – Certified Real Estate Pricing Specialist. This is the training part of the ability to do a Broker Price Opinions (BPO). The experience part comes from years of working a local area like the greater Sacramento area. Dan Parisi has lived in the area over 30 years and has been a California licensed agent and broker since 2013. He has sold many properties in that time and has given many more opinions on price.
