A BPO or Broker’s Price Opinion is the process used by financial institutions to determine the potential selling price or estimated value of a real estate property. A BPO is generated by a hired real estate sales agent working for the bank or mortgage holding company and is most often used in short sale situations to establish an initial sale price range.
When a BPO is used to assess a property’s value to establish a selling price, there is usually a preliminary BPO and an interior BPO. The interior BPO is the most important because it evaluates the living space, not the exterior appearance or the neighborhood comps.
Banks can dictate in their BPO order what comps can be used and establish a proximity range where the comparable properties may be located. Finding the right comps can be a problem in a lot of areas and those choices greatly impact what the lender thinks the property should sell for price-wise.
The second part of the BPO, the interior evaluation, is usually more favorable to the bargain hunter, aka house flipper, because a property can be greatly reduced in price by a low score here. Haphazard paint jobs, incomplete renovations, substandard living conditions, non-working appliances, low-quality kitchen cabinets and outdated baths will all drive the BPO price down.
A broker’s price opinion is an informed opinion of value prepared by a licensed real estate agent who has valuation knowledge about the area in which the property is located. Banks use this info for the purposes of placing value on foreclosures, resales, and loan modifications.
They do it because the cost of a BPO to the financial institution is $50 to $75 vs. $350 to $400 for an appraisal. Banks are required to use a licensed appraiser when underwriting a mortgage loan. Appraisers are also licensed by the state in which they operate, have ongoing educational requirements, and also undergo additional scrutiny if they are doing appraisals for government-backed loans.
The overall quality of a broker’s price opinion should be thought of as a ballpark range. It depends on the competency of the person performing the analysis. A real estate broker with many years of experience can certainly be as accurate as a certified appraiser.
It’s important to note that a BPO is not acceptable for underwriting a loan. It’s a selling evaluation tool, not a purchase requirement.
As a house flipper seeking a bargain price on a short sale deal, you need to understand that everything is negotiable up to a point. Never offer asking price. Start low and don’t overspend just to get the property. Walk away if you can’t get it for a price where the numbers work for you.