What is the BPO meaning in real estate?

If you are a homeowner or a potential buyer, you must understand the meaning of Broker Price Opinion, BPO, in real estate. BPOs may not be the most accurate way to determine a home’s value, but they can be helpful. For instance, if you want to cancel your private mortgage insurance or are thinking of buying a new home. 

Interestingly, if you’re facing mortgage difficulties as a homeowner, your lender may request a BPO without informing you.

For a homeowner, it’s essential to understand when and why broker price opinions matter. And, what is the best method to get a BPO? 

What does BPO mean in real estate?

A Broker Price Opinion (BPO) is an estimated property value provided by a real estate broker or a qualified real estate professional. It considers the property’s features to determine its value. However, it is not an official appraisal and may not align with the property’s market value.

Keep in mind that not all states in the United States allow or use BPOs. Some state laws may restrict brokers from offering this service or charging fees for it. And, in some states, brokers may undergo training for BPOs. But, the legality varies from one place to another. 

What are the primary factors influencing a BPO?

Several factors play a role in determining a BPO. This includes the geographical location of the property, the sales prices of comparable properties in the neighborhood, and the anticipated expenses for repairs or preparing the property for sale. That is to say, any cost associated with making the property market-ready or addressing necessary home repairs.

The BPO process analyzes recent sales trends in the neighborhood and evaluates how the property fits into real estate comps. 

Why is BPO important? 

A broker price opinion is a request made by a loan lender or property owner to assess the value of a property. A lender would commonly use this information for purposes such as refinancing a mortgage or dealing with foreclosure. However, do keep in mind that a BPO is only used for a quick estimate or marketing purposes. It may be less precise than an appraisal conducted for mortgage underwriting. Moreover, government-backed loan applications do not recognize BPOs. 

Property owners seeking changes, such as selling the home or refinancing, may also request a BPO. The appeal of a BPO lies in its lower cost and quicker turnaround compared to a property appraisal.

What are the different types of broker price opinions?

Brokers can conduct a “drive-by” BPO, aka external BPO, where they assess the property value only from the outside. Alternatively, an “internal” BPO involves gaining access to the home, evaluating its condition and features, and possibly taking photos.

An internal BPO, where the agent physically visits the property, is generally more accurate than an external BPO based solely on the property’s exterior.

How does Broker Price Opinion work?

To figure out the BPO, a real estate agent or broker uses their knowledge to estimate a property’s value based on specific factors. Typically, a local broker familiar with the housing market conducts a comparative market analysis to determine what buyers might pay for the property.

Agents often do this as part of their listing agreement when selling your house. They examine recently sold similar properties and estimate the home’s suitable listing price.

However, in the mortgage lending process, BPOs are not the preferred method for determining a property’s value. Lenders usually opt for a professional appraisal instead. BPOs are not accepted for mortgages sold to Fannie Mae or Freddie Mac. Moreover, the FHA, VA, or USDA do not guarantee them.

Remember that the accuracy of a BPO depends on the expertise and knowledge of the real estate agent or broker. An experienced real estate professional, with a deep understanding of the local real estate market, is more likely to produce a reliable BPO.

Is a BPO the same as a home appraisal?

No, there is a marked distinction between a BPO and an official appraisal. While a BPO provides an estimate of a property’s value based on various factors, it is not equivalent to the comprehensive assessment conducted in an official home appraisal. 

An appraisal typically involves a more rigorous and detailed examination by a licensed home appraiser to determine the property’s precise market value. 

How does a real estate broker benefit from a BPO?

Brokers may give a price opinion not just for payment but also to try and win the property listing they are assessing. They might include a marketing plan to show how they would represent the property. This provides an additional chance to showcase their marketing strategies and potentially secure more business in terms of selling or leasing properties.

More often than not, this alternative to market analyses is an opportunity for brokers to demonstrate their skills to property owners. By providing a BPO, a broker may increase their chances of winning the listing when the property owner decides to sell. This can lead to additional income through real estate agent commissions from the sale of the property.

When does a Broker Price Opinion make sense?

A BPO is most useful at the beginning of a real estate deal. Especially, when deciding on the listing price for a home. It helps the seller understand the home’s condition and what the property is worth. And, it gives the buyer an idea of what they might need to pay.

In certain situations, such as foreclosures or short sales, BPOs are widely accepted. For instance, some states such as Pennsylvania allow BPOs for short sales and pre-foreclosure work.

For home buyers, it makes sense to get your own BPO in these situations:

• Buying a financially distressed property: Brokers can provide a more accurate value for a foreclosed home, especially if it’s in a neighborhood with good comparable homes.
• Making an all-cash offer or trying to close quickly: Using a BPO for your bid is often quicker than hiring an appraiser.
• Working with a lender that accepts BPO reports: Not all mortgage lenders allow BPOs, so it’s important to check if your lender accepts them in place of an appraisal.

What is the best way to get BPO?

The easiest way to get a BPO is to ask your Realtor (member of the National Association of Realtors) or an experienced real estate agent in your area to assess your home’s value. 

Another option is to look for specialists through the National Association of BPO Professionals directory by entering your zip code. 

Your broker will perform a BPO. They will set up a time to visit your home and give a report. You must remember the difference between an internal and external BPO. If you’ve made significant upgrades, such as a kitchen remodel or a bathroom renovation, make sure those changes are considered when determining the property value.

Written by Ramona Sinha. March 4, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.