The real estate industry heavily relies on accurate property valuation estimates. In other words, real estate brokers, home buyers, and home sellers couldn't consistently buy and sell homes to everyone's satisfaction unless everyone agreed on the general value of most properties. In many cases, real estate agents and property owners will order appraisals to be done, which are in-depth estimations of a property’s value by analyzing lots of specific factors. However, others might prefer broker price opinions, or BPOs. BPOs are faster, cheaper, and more flexible valuation estimates performed by real estate brokers. Let’s break down exactly what BPOs are and when you should use them for the best results.
A [broker price opinion](https://www.investopedia.com/terms/b/broker_price_opinion.asp#:~:text=A%20broker%20price%20opinion%20(BPO,other%20qualified%20individual%20or%20firm.&text=A%20BPO%20is%20not%20representative,to%20a%20property's%20market%20value.) is, in essence, just a real estate broker’s estimated value for a property. In some cases, other qualified individuals, such as firms, real estate companies, or financial advisors can also technically give BPOs. But in most cases, it refers to the official value estimation from a licensed real estate broker. Note that BPOs are distinct from official appraised estimates of a property’s market value . The official appraised value is only determined after appraisals, inspections, and a variety of other factors. Meanwhile, market value can be based on either real-world or practical value plus estimated “soft” value relating to the surrounding housing market.
Broker price opinions are used as tools by mortgage companies and lenders who need to value properties when they don’t want to use an appraisal instead. BPOs are faster, cheaper, and can sometimes even result in a more accurate market value assessment based on several factors.
There are two main types of BPOs that might be requested based on surrounding circumstances. The two types are often selected based on whether a particular property is occupied or other factors. The first of these is a so-called “drive-by” broker price opinion . Drive-by BPOs are really common tools that lenders use for foreclosures and refinancing properties. This is exactly what it sounds like – a licensed or otherwise qualified real estate broker drives by an occupied property and makes a quick estimation of its value based on factors like:
In many cases, drive-by BPOs can be completed in just a few minutes and most brokers don’t even leave their cars when making these quick estimations. However, other real estate agents might get out of their car and investigate a property to see whether it’s occupied. They must however be careful not to be accused of trespassing. The other type of BPO is called an internal broker price opinion. This is a much more thorough type of BPO and requires serious valuation work plus photography. Brokers or real estate agents will investigate a home in detail, usually going inside (hence the name). This involves a much more detailed analysis of a property and its estimated value. Brokers usually take photos to back up their analyses when explaining their opinions to clients. Both types of BPO’s can be helpful in certain situations. Brokers may decide to use one or the other or both.
Broker price opinions aren’t particularly complex. They’re just analyses from qualified realtors who have a lot of industry experience. They use their history of successful real estate deals to project or estimate the value of a property based on its appearance, physical factors and attributes the estimated price or quality of the surrounding neighborhood, and so on. However, broker price opinions are basically “unofficial” assessments for a property’s potential market value. They aren’t as official as a full appraisal and are based more on subjective factors compared to hard data. Furthermore, BPOs are not allowed in every state. Certain states have various laws that prevent real estate agents or brokers from providing this service. That’s because BPOs performed by realtors could potentially offer incorrect or invalid information due to the inherent conflict of interest. Realtors may, hypothetically, artificially raise their price estimation for a property since, if they manage to sell the property, they’ll make a bigger commission as a result. Thus, some people don’t believe BPOs to be worthwhile valuation tools or strategies and may not accept any estimations from them as a result.
In general, potential clients or homebuyers/sellers may use BPOs before initiating an official appraisal. These can be helpful tools for any lender or home buyer/seller who wants a quick assessment of a property. Even if they aren’t as detailed as a full-on appraisal, BPOs can still provide various parties information like:
Additionally, people may use BPOs instead of full appraisals since they are much cheaper. Full appraisals are usually only ordered when a home purchase or sale is well underway. Some realtors use BPOs as initial analysis tools, then move on to appraisals later during the selling process.
There are some significant differences between BPOs and appraisals. For instance, official appraisals can only be conducted by certified valuation professionals . Those professionals aren't just real estate brokers – they're uniquely qualified professionals who have lots of education, training, and also uphold certain testing standards. They thoroughly and extensively estimate the value of a property in a different way from the more gut-focused approach of real estate brokers performing a BPO. Furthermore, appraisals are conducted by neutral third parties that don’t have any personal interest in a property. This prevents a potential conflict of interest. In contrast, BPOs are often performed by realtors or real estate agents that may have a vested interest in raising the estimated value of a property since this may affect their commission. However, BPOs are usually less expensive than the cost of a full appraisal. In fact, people can ask for BPOs from qualified realtors for as little as $50. Appraisals (which are usually charged as part of a property’s closing costs) can often cost several hundred dollars on average.
No. BPOs are not meant to be used as full replacements for appraisals ; however, they can be excellent tools to use in certain circumstances:
However, there are other circumstances in which appraisals may be a better choice:
Remember, as well, that different states have varying regulations about broker price opinions. Some states only let you use BPOs for specific cases, like competitive listing prices. Others may not let you use BPOs at all, and indicating that you used one to estimate the value of a property could get you in trouble with the law. Be sure to research your state’s BPO regulations before ordering one of these, whether you’re valuing the property to sell or buy.
In the end, broker price opinions are just extra tools that real estate agents, homebuyers, and sellers can all use to quickly and (mostly) accurately estimate the value of a property. It's a kind of the “quick and easy” counterpart to a full appraisal and certainly has its place in many real estate deals. But don’t use BPOs to totally replace appraisals. Additionally, don’t use BPOs as your only estimation tools when determining how much you should offer for a new home or how much you should demand when selling your property. And if you’re looking to buy a home or make an offer, be sure to check out Seek Capital for loan information and resources or to apply for a business loan to secure that new office for your team! Sources https://www.investopedia.com/articles/pf/12/home-appraisals.asp https://www.investopedia.com/terms/b/business-process-outsourcing.asp https://www.nytimes.com/2004/08/08/realestate/your-home-market-vs-appraisal-what-s-the-real-value.html#:~:text=Market%20value%2C%20Ms.,a%20market%20value%20of%20%24420%2C000 .