Derek Morgan
Derek Morgan
Couple on a virtual home tour
Derek Morgan
Derek Morgan

    What is a BPO?

    As you browse real estate listings, you might wonder who sets the prices attached to each home. The simple answer is that listing prices are based on a Broker Price Opinion (BPO) completed by the seller's agent or broker.

    But what exactly is a BPO? A BPO is a real estate professional's opinion of a property's value. They're most often used when setting the list price of a property, similar to a comparative market analysis, and in the case of a foreclosure or short sale. Let's dive deeper into the world of BPOs and explore their role in the real estate process.

    Internal and External BPOs

    An internal BPO involves a broker spending time inside the property to evaluate the condition of the home, take measurements, and capture photographs. The broker should be familiar with the local housing market so that they can appropriately assign a dollar amount to a property based on the specific factors of the respective area.

    On the other hand, an external BPO, also known as a drive-by BPO, only involves the broker assessing the outside of the property before giving it a sticker price. Internal BPO’s may be more thorough and accurate, but they tend to be more time-consuming and costly. External BPOs, on the other hand, are quick and inexpensive but may not be as accurate.

    Role of BPOs in the Real Estate Transaction

    BPOs play a crucial role in the early stages of the real estate transaction because the agent or broker will use it to determine the listing price. While BPOs are helpful in setting the list price of a home, they're not the go-to method in the mortgage lending process. 

    BPOs are a preliminary research and evaluation tool. To create something acceptable for mortgages it is necessary to obtain an appraisal, especially for mortgages sold to Fannie Mae or Freddie Mac. Additionally, appraisals are required for mortgage loans such as Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or Department of Agriculture (USDA). As a result, lenders will order a professional appraisal for the property to determine its value rather than a BPO.

    Differences between BPOs and Appraisals

    BPOs and appraisals may seem similar, but there are a few key differences. 

    First, appraisals require a heightened level of expertise and training. Appraisers are certified valuation professionals who have met extensive education, experience, and testing standards in valuation. They've demonstrated their valuation competency by passing a national exam and adhere to generally-accepted uniform valuation standards.

    Second, professional appraisers generally don't have conflicts of interest that could influence their opinion. Appraisers are paid solely for determining property value, while real estate professionals are paid on commission.

    Lastly, BPOs are less expensive than appraisals. A BPO might be approximately $50, while an appraisal can cost upwards of a few hundred dollars.

    BPOs can be less expensive, however they aren’t always as accurate as an appraisal. A BPO is an opinion of value, whereas an appraisal is a professional evaluation of the property's value. This is why lenders typically rely on appraisals in the mortgage lending process.

    Conclusion

    In conclusion, BPOs, or Broker Price Opinions, are real estate professionals' opinions of a property's value. They're most often used when setting the list price of a property, similar to a comparative market analysis, and in the case of a foreclosure or short sale.

    We hope this article has demystified the difference between BPOS and appraisals. Follow our blog to Unreal Estate for more informative and fun real estate content, or browse listings to find you next dream home.

    We'd love to hear your thoughts about this article and our blog. Let us know how we did by completing the Unreal Estate Blog Feedback Survey.

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