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I just had a nice lunch with my family and returning to work at my home office. I’m now browsing through LinkedIn. Many of my connections are real estate professionals such as appraisers, salespeople, and brokers. As I review their profile, I see that some of them are providing BPO services.
I have heard about real estate appraisal, comparative market analysis (CMA), but what is a BPO? I immediately did in-depth research, and below are something that I found.
BPO stands for Broker Price Opinion. It is a method used by real estate agents or brokers in estimating the valuation of a property. Lenders and mortgage companies are typically the ones who request for a BPO.
In this article, you’ll learn the process involved when developing a BPO, why companies would want one, what are the benefits of providing this service to your clients, its limitation and other aspects about the Broker Price Opinion.
- Under What Circumstances Would a BPO be Used?
- How to Develop a Broker Price Opinion?
- Why Providing BPO Services could Benefit your Real Estate Career?
- Difference between a CMA and a BPO
- Difference between a Real Estate Appraisal and a BPO
- Controversy about Broker Price Opinion
- How Can You Equip the Skill Set in Creating a BPO?
Under What Circumstances Would a BPO be Used?
One of the most common reasons a lending institution would order a BPO is when a mortgage default and they are considering to short-sale the collateralized property. Before that, they will need to determine the value of the foreclosed house. This is when you come into the play in providing your BPO.
The Broker Price Opinion could also be used for refinancing or obtaining a mortgage. However, they typically would be used as a supporting reference document, and not as a replacement for an appraisal during underwriting.
For instance, some lenders could first use automatic valuation tools such as Zillow Zestimate, and then confirm the valuation with the BPO. Some would even order BPO from two distinct real estate brokers and try to obtain a different perspective about the property value.
Some lenders would order a BPO over a full appraisal because its cost is a lot lower. Also, its turnaround time could be quicker. However, this is not an apple-to-apple comparison. A real estate appraisal and BPO have some significant fundamental differences which we will go over later in this post.
How to Develop a Broker Price Opinion?
When a company requires your opinion of value for a real estate, you should compare the subject property with at least three comparables. To ensure your estimation is as close to the current market condition as possible, the ideal comparables are the ones that were sold within the last three months.
Generally speaking, there are two types of BPO, which are the Drive-By BPO and Interior BPO.
This is the simplest kind of BPO. You can just drive-by the property and inspect its exterior. Your evaluation does not require you to enter the property physically.
In fact, some agents do not even drive-by to the subject property. They merely rely on the photos and details posted on the MLS website. So the entire assessment is based on numbers alone.
Even if two properties have a similar layout, their values could vary a lot due to the interior difference. Therefore, some financial institutions would prefer you to inspect the interior of the property.
When you are inspecting a subject property, you should pay close to upgrades or deterioration which could significantly affect the home price – for instance, a property with a newly renovated kitchen and flooring could be a huge added value component. On the other hand, a furnace or roof that need to be replaced soon could bring down the selling price.
Remember to take photos during the inspection and include them in your BPO report.
Why Providing BPO Services could Benefit your Real Estate Career?
One way or the other, the skill set to evaluate a real estate is an essential to your career. By taking on BPO assignments, it helps to sharpen your skills in this area.
Furthermore, when you first start in the real estate industry, your sales volume might not be adequate to support your living. Rather than taking on another unrelated part-time job, providing a BPO service could be a great way to earn some side-incomes.
When you are providing an opinion about property value, you can demonstrate your expertise to the lending institutions. This helps to build rapport, and long-term trusted relationship with them.
Difference between a CMA and a BPO
Usually speaking, a Comparable Market Analysis (CMA) is done for a seller to determine a reasonable listing price of a property whereas lending institutions are the ones who would obtain a Broker Price Opinion (BPO).
Although both CMA and BPO are tools for estimating property value, BPO tends to a more thorough report.
As far as I know, most states do not require you to hold a license when preparing a CMA. On the other hand, numerous states such as Nevada, Mississipi, Pennsylvania, Utah, West Virginia do require you to have a real estate license when providing a Broker Price Opinion.
Most real state agents would include the CMA free of charge as a value-added service but would charge around $75 to $150 for a BPO. However, some states prohibit you in charging fees for BPO, so make sure to confirm with your broker.
Difference between a Real Estate Appraisal and a BPO
A real estate appraisal needs to be done by a licensed/certified appraiser. Depending on the level of license that an appraiser is holding, the State Board actually have stringent rules on the value and type of properties they could assess.
A full appraisal involves much more in-depth research than a BPO. In addition to looking at comparables within the same neighborhood, an appraisal would utilize other approaches – for example, the cost approach which estimates the appraised value shall the property needs to be rebuilt.
Due to the amount of extra work involves, an appraisal would be more costly. It typically costs around $300 to $500 for a residential appraisal. However, many underwriters still only accept appraisals when underwriting for a mortgage or loan.
Controversy about Broker Price Opinion
Some people are concern about the accuracy of a BPO because they believe inexperienced and part-time agents tend to create it. Their argument is that since only new agents would have the time to take on such low-fees assignments.
In some extreme cases, people reported seeing a real estate agent simply drop-by the subject property on their way to groceries shopping. They went into the home and took a few photos. Then rush out to the car within 5 minutes because their kids were still waiting in there.
I don’t have the full story so I cannot comment on it. Besides, there could be some degree of exaggeration. But I don’t believe all real estate professionals would practice in such a way.
“In my experience new agents would not be doing this. If it is an opportunity I would advise them to ask a broker experienced with the process to work through the first one or two with them. If your brokerage has an extensive training department as mine does there may be resources available there also.”
Vicki Deane, Concierge Level Real Estate Services. Assistant Manager at Baird & Warner – https://vickideane.bairdwarner.com/
How Can You Equip the Skill Set in Creating a BPO?
One way to start is by joining the National Association of Broker Price Opinion Professionals (NABPOP). They are a non-profit trade association which consists of real estate brokers and agents who are active in the BPO field.
The NABPOP offers courses and certification programs to strengthen your knowledge about providing Broker Price Opinion. When you become their active certified members, you’ll also receive the designation, Certified Real Estate Pricing Specialist (C-REPS). This credential can demonstrate your BPO expertise to your clients.
The ability to evaluate a property value is an important skill set to your career. When you provide a Broker Price Opinion, not only you could make some side-revenue for your business, but you could also build rapport and include this as a value-added service to your existing clients.
Just because the fees you’ll receive per assignment is not substantial, you should still exercise with careful research and professionalism. Keep in mind your credibility is a built on of every single thing that you work with your clients.
Disclaimer: The information in this post is for general information only, and not intend to provide any advice. They are subjected to change any notice, and not guaranteed to be error-free. For full and exact details, please contact your real estate broker or the regulatory commission in your state..