Broker Price Opinion (BPO): What You Need To Know
Searching for a home? You might wonder who sets the prices of all those for-sale properties listed online. Who determines whether that ranch home in the suburbs should be listed at $300,000 or that condo in downtown should have a sales price of $275,000?
In most cases, it comes down to real estate agents and the home sellers with whom they work. Agents provide their clients with what is known as a broker price opinion or BPO. A BPO is a real estate professional's opinion of what a home will sell for. Sellers rely on this information when setting the sales prices of their homes.
Here we’ll cover what a BPO is, what it is used for and how it differs from an appraisal, as well as different types of BPOs.
What Is BPO In Real Estate?
Usually, a real estate broker provides a broker price opinion on a home on behalf of the home sellers they are representing. The goal of a BPO is to determine a listing price that isn’t so high that it chases possible buyers away or isn’t so low that it leaves too much profit on the table.
When calculating a BPO, brokers and agents look at nearby home sales. They also consider factors such as the number of bedrooms and bathrooms in a home, a home’s age and condition, its location and its size.
While BPOs are a good way to get an idea of what a home you are selling or buying is worth, mortgage lenders won’t accept them when you or buyers interested in your home apply for financing. Instead, you or the buyers will need to go through the appraisal process before lenders will close a mortgage loan.
BPO Versus Appraisal
It’s easy to get BPOs confused with appraisals. But these two methods of determining the value of a home are quite different.
First, while a BPO represents the opinion of a real estate agent of what a home will sell for, an appraisal represents the determination of an appraiser of what a home is currently worth.
To determine this value, appraisers study the recent sales of similar properties and consider the age, condition and location of a home. They also factor in how well the owners have maintained a home and such factors as the number of bathrooms or bedrooms in a property.
Secondly, when you apply for a mortgage to finance a home, your lender will almost always require an appraisal. That’s because your lender doesn’t want to lend you more dollars for a home than what that property is worth. Lenders will not accept a BPO in place of an appraisal.
This holds true, too, if you are applying for a mortgage insured by an agency of the federal government. Your lender can’t accept a BPO in place of an appraisal for FHA, VA or USDA loans. Lenders must have an appraisal instead of a BPO, too, for loans guaranteed by Fannie Mae and Freddie Mac.
BPOs tend to be less expensive than appraisals. An appraisal will usually cost $400 – $500, though in some circumstances it could cost as much as $600 or even $2,000, depending on the area and home characteristics. A BPO is usually half of this cost, which is why homeowners often request them instead of appraisals when they need to determine the value of their properties.
If you are selling a home, you might request a BPO from your real estate agent. This estimation of what your home will sell for can help you set an accurate asking price for your property, one that will leave you with the most profit.
If you are interested in refinancing your home, you can also request that your lender accept a BPO. You might need an estimate of your home’s value because most lenders want you to have at least 20 percent equity – the difference between what your home is worth and what you owe on you mortgage – in your home before they approve your request for a refinance.
Lenders might still require an appraisal, BPO because an appraisal is considered a more accurate measure of your home’s worth.
Common Uses For A BPO
When, then, is a BPO useful?
When setting a sales price: Setting the right asking price for your home is essential to moving it quickly and for the most profit. Your real estate agent’s BPO will help you determine the best asking price for your home.
When selling your home through a short sale: If you can no longer make your mortgage payments, and have fallen behind in them, you might consider selling your home through a short sale. In a short sale, your lender allows you to sell your home for less than what you owe on your mortgage. This helps you sell your home quickly before you fall further behind on your mortgage payments.
Your lender will want to know your home’s market value before agreeing to your request for a short sale. It might accept a BPO for this instead of an appraisal because BPOs generally take less time than an appraisal.
How Do Broker Price Opinions Work?
Real estate professionals will consider several factors when compiling a BPO. Those factors include:
- Information from real estate comps and a comparative market analysis: Real estate professionals will look at the prices that similar homes in your neighborhood have fetched. This helps real estate professionals set a baseline value for your property.
- Age of the home: Newer homes tend to be more expensive, but some buyers prefer older homes.
- Size of the property: In general, the smaller a home, the lower its value.
- Surrounding neighborhood: If a home sits in a desirable neighborhood, once in which home values are on the rise, its value will generally be higher than a similar home in less-desirable neighborhoods.
- Zoning: Zoning laws regulate the use of land in a municipality. Homes located in communities with stricter zoning laws, which prevent unappealing land uses in residential areas, tend to have higher values.
- Property condition: This is one factor that homeowners have the greatest control over. The better a home’s condition, and the better it is maintained, the higher its value.
Types Of Broker Price Opinions
There are two main types of broker price opinions:
- External BPO (also known as a drive-by BPO): In this type of broker price opinion, real estate professionals simply analyze the exterior of a property without checking its inside. They will also include information about recent home sales and the strength of the local real estate market in determining a home’s value.
- Internal BPO: In this type of BPO, real estate professionals look at the home inside and out. Real estate pros then verify the number of bedrooms, bathrooms and square footage. They might also check the working condition of a home’s appliances and look for any signs of wear-and-tear, such as cracked windows and fraying carpet.
Finding Broker Price Opinion Companies
Any real estate agent with which you work should be able to give you a BPO for a home you want to buy or list for sale. But there are also BPO companies that operate nationally. You can find these by doing a simple online search for “BPO companies.”
You can also contact the National Association of BPO Professionals for a list of real estate professionals who hold the NABPOP certification.
Should You Get A Broker Price Opinion?
In most cases, an appraisal is a better option. Yes, appraisals are more expensive, but they are also more accurate and in-depth, and are often required by the lender.
A BPO might make sense, if you’re selling your home through a short sale. BPOs take less time and cost less. Owner selling distressed property and hoping to avoid falling into foreclosure, might request that their lenders accept a BPO instead of an appraisal.
A BPO also makes sense when you are ready to list your home for sale. Your real estate agent will give you a suggested value for your residence. This will help you set the best asking price when putting your home up for sale.
The Bottom Line
While BPOs are an alternative to appraisals, they’re not nearly as common. The reasons is that appraisals are generally considered a more accurate way to determine the value of a home. And mortgage lenders won’t accept BPOs instead of appraisals when you’re buying a home.
That doesn’t mean that BPOs don’t have their uses, especially if you are selling a home through a short sale or if you need to determine the value of your home before listing it for sale.
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