What’s a BPO and why would I need one?
There are a lot of acronyms in real estate — and they don’t always make sense to people outside of the industry. If you’ve heard of a BPO but you aren’t sure what it is or why you might need one, we’re here to help explain it to you: It stands for “broker price opinion,” and it’s one way of valuing a property without ordering a full appraisal.
(What’s an appraisal? It’s when a qualified, licensed appraiser examines a house and offers an official opinion on how much that home is worth on the current market. Appraisals are required for most home sales so the mortgage lender has confirmation that the home is actually worth the amount of money being loaned to buy it, and for many other real estate deals and transactions, but there are times when a BPO will suffice.)
A BPO has several advantages over an appraisal. They are usually faster and more affordable to order, so if you’re in a time crunch or don’t need a full appraisal, a BPO can be a good alternative.
There are also disadvantages, though; BPOs can’t be used in certain transactions for loan amounts more than $250,000. (This amount may be raised to $400,000 if a rule change under consideration is passed.) And they aren’t considered to be as accurate as appraisals, either, which is why appraisals are required for some real estate deals. A broker does not need to actually walk inside a property in order to create a BPO for it, but appraisals always include extensive on-site visits with photographs of the home.
As the name indicates, a BPO is a broker’s opinion of a property’s price. However, it’s not just a number that a broker throws at the wall in the hopes that it sticks. Brokers apply their current market knowledge and use many of the same techniques that an appraiser would use to land on a home value.
One of those techniques is choosing comparable homes (also called “comps”) that were recently sold, which can help show the current market demand for homes similar to the property in question and give the broker or appraiser a sense for how much that home might be worth. Most BPOs and appraisals include at least three comps, although more can always be used. There are both internal and drive-by BPOs; brokers conducting an internal BPO will walk through the property, but will only look at the outside of the home in a drive-by BPO.
So why would you want a BPO instead of an appraisal? Many financial institutions use BPOs to determine a home’s worth for mortgage loans on their books, for example; others use BPOs for home equity loans and lines of credit, or refinance opportunities. Even though a BPO can’t be used in sales transactions (or most of them), there are still plenty of reasons why it might be advantageous to order one instead of an appraisal.
Not every broker will conduct a BPO, although every broker is qualified to create one. If you think you might need one and you’re not sure where to get one, ask your real estate broker whether they can help or would be willing to recommend a broker they trust to execute your BPO for you.