Most people who’ve ever purchased or sold a home are familiar with the concept of an appraisal, but not everyone has heard of a Broker Price Opinion or BPO.
Simply put, a BPO is an unofficial assessment of a property’s potential market value based on an expert judgment, usually by a real estate broker. Contrast that to an appraisal, which is when a qualified appraiser examines a property and offers an unbiased, professional assessment on the value of the home in the current market.
Appraisals are required for most home sales so that mortgage lenders can confirm that the home is legitimately worth the amount of money being loaned to buy it. They are often required for other real estate transactions as well, such as when refinancing.
For circumstances when a full appraisal isn’t required, a BPO provides a viable alternative since they are faster and more affordable. In this article, we lay out the pros and cons of BPOs so you can determine if they’re right for you.
When Is A Broker Price Opinion (BPO) Used Or Needed?
The most important distinction between appraisals and BPOs is when each can be used.
Generally speaking, most states and lenders (e.g., Fannie Mae, Freddie Mac, Federal Housing Administration, etc.) require a professional appraisal as a part of the mortgage lending process. But even though a BPO can’t be used in many sales transactions, there are still plenty of reasons why it can be advantageous to order one instead of an appraisal.
BPOs are utilized by listing agents when setting the list price of a property. This is helpful in the early stages of a transaction so that the seller can understand what sale price they might expect, and the buyer knows what they might anticipate paying.
BPOs are also requested in foreclosures and short sales, when lenders are motivated to turn around properties quickly and for minimal expense. There are also some instances where homeowners can use a broker price opinion when trying to cancel their private mortgage insurance.
Different Types of BPO, Internal BPO & External BPO
Since the BPO is usually determined by a real estate agent or broker who has knowledge of the local housing market, chances are the estimated value will be reasonable and in line with other properties recently sold in the area (aka comparison properties or comps). Most BPOs include at least three comps, although more comps can always be added. They are based on a combination of objective and subjective factors, such as curb appeal, the characteristics of the neighborhood, and the strength of the current housing market.
There are two types of BPOs, internal and external. The more popular external BPOs, sometimes called drive-by BPOs, entail a broker assessing the outside of the home to come up with a list price. An internal BPO, as the name implies, involves an agent going into the home to capture photos, take measurements and inspect the condition of the home.
Keep in mind that since the real estate agent is likely to be paid a commission based on the sale price of the home, there is an inherent conflict of interest that can affect the BPO.
On the other hand, an appraisal is conducted by an independent, certified valuation expert who has education, training, and experience in appraising properties. They go inside the home, inspect the foundation, assess electrical and plumbing systems, check for water damage and, of course, determine the square footage and general condition of the property. They also look at factors such as the property’s age, building materials and area comps.
An appraiser is paid solely to determine the property’s value. As such, they generally don’t have any conflict of interest that could influence their assessment.
How Much Does A BPO Cost? How Long Does A BPO Take?
The chief advantage of BPOs is their cost, which can run from $50 to $200, depending on whether it’s an interior or a drive-by BPO. In the case of an external BPO, an opinion can be proffered in as little as a day.
Appraisals can take anywhere from several days to several weeks, depending on the availability of the appraiser and the time it takes to generate a final report. They generally cost anywhere from $300 to $450 or more.
The Bottom Line On BPOs
When circumstances allow, BPOs offer several advantages over appraisals. BPOs can be completed faster, are less expensive and can be used in place of appraisals for borrower-initiated PMI cancellation requests, foreclosures and short sales.