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.”
[Read: The Guide to Selling Your Home]
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.
[Read: How to Find a Real Estate Agent]
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.
Are these must-haves on your list?
One of the first steps you take when deciding you want a new home is determining what you need in order to be happy there. The list of your must-haves can get long, and you reasonably can’t expect to find a house that perfectly matches all your criteria. “Someone has a list of 10 things – if they can find a house that has seven or eight of those, they’re doing pretty good,” says Jeff Plotkin, a Texas-licensed Realtor, attorney, certified public accountant and vice president of Habitat Hunters Inc. in Austin, Texas. Deciding what needs win out in your next home search can be tough, but there are a few key features and amenities many buyers seem unwilling to live without.Right in your price range
Right in your price range
Being able to afford your new home is a given, but buyers are often faced with having to choose between stretching their budget to have the master suite they want or having more reasonable monthly mortgage payments. Price often wins out in the end – you’re less likely to enjoy that master suite if you’re eating soup and foregoing vacations for the next five to 10 years to pay it off. In the 2018 National Association of Realtors Home Buyer and Seller Generational Trends report, home affordability was one of the three most important factors for respondents who recently purchased a home – behind only quality of the neighborhood and a location's convenience to work.In your preferred location
In your preferred location
Homebuyers care a lot about being able to get from point A to point B – as well as points C, D and E. Your future neighborhood can dictate what school your kids go to, how long it takes to get to work and how easy it is to stop at the grocery store when you forgot an ingredient for dinner. Plotkin says buyers put a lot of stress on where the house is, rather than what’s in the house itself. They’re looking for “proximity to schools, shopping, entertainment, public transportation,” he says.Interior over curb appeal
Interior over curb appeal
A handsome exterior keeps potential buyers from quickly driving away, but insight from new construction marketing site HomLuv.com reveals that it’s the interior that most often serves as the deal-maker. HomLuv’s website allows homebuyers to begin their search for a new home from the room they care about most, whether that’s the kitchen, living room or master bathroom. The one part of the house people don’t seem too worried about? Outside. In the roughly two months since HomLuv launched, “no one has chosen to look at exteriors first,” says Mark Law, vice president of product management for BDX, a home builder marketing company and parent company of HomLuv.The right number of bedrooms
The right number of bedrooms
While the interior of the home allows more wiggle room to compromise on your needs, there are some details that buyers must have. The right number of bedrooms would be the big one. Family expansion is often a primary reason homeowners start looking for a new house, so leaving out that extra room would defeat the entire purpose of the sale. According to the NAR report, 85 percent of homes purchased by respondents in 2017 had three bedrooms or more.Window treatments for reference
Window treatments for reference
Staging matters in a home. As much as we think we can picture how a vacant house will look with our own furnishings and decor, at the end of the day we need some suggestions. Law says builders will include big picture windows in bedrooms or over the tub in a master bathroom to let in natural light, but if the photos show the space without curtains or blinds, house hunters will inevitably see a design flaw. “They’ll say, ‘I’m not an exhibitionist,’” he explains. To avoid turning homebuyers off, window treatments should be included in listing photos and for home tours.Move-in ready
The condition of the home you shop for often goes hand in hand with your budget and the neighborhood you hope to live in. If your budget is at the lower end of the price range in the hottest community in town, you’ll likely find yourself buying a house that needs a little love. If your budget doesn’t restrict it, chances are you’ll have your pick of properties that have been turned by real estate investors. “The [buyer] demand is for 100 percent move-in ready condition,” says Bobby Montagne, CEO of Walnut Street Finance, a private money lender focused on home flipping in markets in Virginia, North Carolina and the District of Columbia metro area.Possible to picture your vision
Possible to picture your vision
Even if you’re one of the detractors who prefers a fixer-upper, it’s still necessary to be able to envision how the space will look once you’ve added your personal touches. Based on reactions from HomLuv users, details as small as the cabinet color in a photo can change the way a person thinks about a house. Law says he’s found preferences differ from region to region – darker cabinets may see more love in the South, while in California the preference is for white kitchen cabinets. “You could offer a free puppy and free pots and pans with the house, but if the cabinets are dark they still don’t want it,” he says.Warranty available
For newly built homes and those that have been recently flipped with significant work, you want to know that the professionals involved stand by their work. New construction homes often come with a warranty from the builder or the option to get a third-party warranty, and you should ask the investors involved with a flip for the same level of protection. “A good builder [or] a good flipper does not have a problem with that,” Montagne says. If an issue arises within the life of the warranty related to the workmanship, you can rest easy knowing you’re covered financially for the repairs.Potential for value growth
Potential for value growth
Your home isn’t just where you’ll live – it’s also an investment. There are a few easy decisions you can make that reduce the chances of losing out on potential growth in value over time, whether that means buying in a neighborhood where home values are steadily growing, finding a home in a desirable school district or avoiding living next to a strip mall. “When you’re buying a house, you’re not only buying it for yourself, you’re buying it for resale,” Plotkin says. “So most people are not going to want to back up to commercial [property] or a busy road.”Read More
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at firstname.lastname@example.org.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.