What is BPO in Real Estate?

Dated: June 20 2024

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Simply put, a broker price opinion (BPO) is a real estate broker’s or agent’s estimate of a subject property’s value. It’s one of several ways that bankers, asset managers, and consumers can ascertain a subject property’s value, including a bank appraisal by a licensed appraiser and a comparative market analysis (CMA) created by a real estate professional. The differences in the three valuation products are in the intention for the valuation.

First, it’s important to know which professionals can perform a broker price opinion. Appraisers get paid to do appraisals, but they can also provide BPOs, as casual, less in-depth forms of appraisal. Appraisals are the most detailed valuations, and are used primarily for mortgage loans. Lenders want to be certain that they’ll be repaid, so they hire an independent appraiser to go to the borrower’s subject property to make sure it’s worth the price the buyer is paying. Sometimes, homes fail to meet appraisal, an indication that the home is overpriced. In that case, the buyer has the option to get out of the purchase contract, or to compromise with the seller to get the home’s price reduced. Few buyers choose the option to pay the difference between the contract price and appraisal themselves.

Like appraisers, real estate professionals are licensed to practice in the states where they live, or choose to practice. Each state has its own requirements for licensing. There are two levels for practitioners: agent and broker. Agents must meet certain educational and test requirements, then pass a licensing exam. From the time they’re licensed, they’re required to work under the supervision of a licensed broker. Once they achieve a level of education via continuing education and experience with transactions, they can use these qualifications to become licensed as brokers. Real estate brokers can work independently or head a brokerage where they supervise and provide tools for multiple agents. So, when we call someone a real estate agent, that person is actually the agent of the broker, not of the consumer, as is commonly assumed.

Brokers and agents most often use a marketplace called the multiple listing service (MLS) in their area. The MLS is either a subsidiary of the local real estate association, or it’s independently owned. The purpose of the MLS is to provide brokers and agents with tools they need to do business and to provide a place for all broker and agent members to share their listings. As a data mine, the MLS collects listings for sale, sold listings, property tax roll data, and information or statistics on local schools, crime, and other areas of interest to consumers. The MLS can also cross-reference data to create meticulous reports, including agent production statistics, housing price trends and more. Much of this information is only viewable to brokers, but when they choose to, they can share data generously with consumers.

The most well-known tool in a broker’s or agent’s arsenal is the CMA, a report that shows side-by-side comparisons of recently sold homes, homes currently for sale, and those that are under contract or have expired. Typically, brokers and agents do not get paid to create a CMA, as it’s a business-to-consumer tool most often used prior to listing a home for sale for a seller, or to help craft an offer from a homebuyer to the seller. The interesting thing about CMAs is that they are designed to augment the sales process for both sides of the transaction, which helps clarify the market for consumers and makes it easier for them to come to an agreement on price.

Real estate brokers and agents can also provide broker price opinions, and they also get paid to do so, as a business-to-business tool and secondary source of income when they’re hired by lenders instead of consumers. “Institutional owners and lenders typically request a BPO for transactions such as foreclosure, short sale, or home equity loan, or for their REO listings,” explains the National Association of REALTORS®. As the agent of the broker, an agent can provide broker price opinions. The broker assigns the BPO to the agent to perform, but, on paper, it’s the broker doing the job, just as it is when a home is sold. The sales commission goes to the broker, and it’s the broker who pays their own agent.

BPOs are used to examine the characteristics of the subject property and in some states, are indistinguishable from CMAs by definition. They can be accomplished by a drive-by to estimate the number of rooms and square footage. An internal BPO is more detailed, and is performed by entering the property and verifying the number of rooms, taking square footage measurements, and taking photographs of the interior and exterior of the property. According to Chase.com, a thorough BPO visual assessment also includes creating a CMA and calculating how much it will cost to prepare the property for sale, including the cost of repairs.

BPOs are usually half the cost of appraisals or less, and that’s why lenders, etc. use them to evaluate distressed properties. Why use a BPO—a quickly-prepared but less detailed report—for any property evaluation? The answer is time and costs. The longer the lender deals with a property going into foreclosure or one that becomes an REO, the less profit the lender can make.

When a homebuyer falls too far behind in paying their mortgage, they can ask permission to sell short—for less money than they owe on their mortgage. This information isn’t shared with consumers but is used by the lender to determine the feasibility of allowing the homeowner to proceed with a short sale or to price the home for auction after foreclosure, when the property becomes wholly owned by the lender and is headed for a foreclosure auction. A real estate owned property (REO) is a “lender-owned property that is not sold at a foreclosure auction.” REOs are usually sold at a steep discount, but often require extensive and expensive repairs. Calculating how much it might be to prepare the property for sale, including the costs of any repairs.

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Hills Real Estate Team is here to help you with all of your real estate needs. With our combined 76+ years experience in home sales and negotiations and a vast knowledge of these areas, we are the team to help you sell your current home and/or buy your forever home! Because we have a team at our hands we are more diversified, experienced and qualified to handle any real estate situation. Our education and experiences help us offer more specialties than any one person could.

To learn more, please visit our website at www.hillsrealestateteam.com. Please feel free to contact us via call, text or email at anytime. We are always open and available to help you no matter what your question or situation is.

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Cheri St. Pierre

Cheri St. Pierre has spent 24 years in real estate and thoroughly enjoys putting her business ideas to work. She has lived in South Dakota a good part of her life and knows the Black Hills inside and ....

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