The last few years have been filled with new abbreviations and terminology in the real estate market that had not been commonplace since the early 1990s. One of these abbreviations is BPO. BPO is short for Broker Price Opinion. The term BPO brings visions of a long and tedious analysis for some agents and a gold mine for others. If you understand the process, they are very easy and sometimes fun to make.
BPO vs. CMA
Most real estate agents are familiar with a comparative market analysis (CMA). CMAs are typically produced for a seller for a listing filing to establish the fair market value of the property and for buyers seeking the offer price they will use to purchase a particular home. Knowing how to do a CMA for a buyer or seller is a skill that takes time to develop, but it is one of the most essential tools realtors have in determining a property’s market value. BPOs are just a fancy word for a CMA. They are more structured in terms of guidelines an agent must follow and require photos of the property in question and any comparables used in the report, as well as any damage to the property.
Why do banks use BPO instead of certified appraisals?
Banks have been hiring real estate agents for years to give full BPOs on properties they are lenders on. In the world of BPOs and REOs (real estate, property that has been repossessed and is now owned by the bank), BPO and CMA are used interchangeably, especially when referring to an in-house BPO. Terminology varies from lender to lender. The reason banks hire real estate agents to complete BPOs for them is that the cost to the lender is much less than hiring a certified appraiser. The average BPO payment to a real estate agent is $35.00 to $100.00 per request, while most certified appraisals cost $350.00 or more per request. The fee will depend on the type of order (exterior/interior), proximity to the property, and delivery time.
What are BPOs used for?
There are a variety of reasons why a lender would order a BPO. These reasons include:
1. default of the borrower,
2. Elimination of PMI (Private Mortgage Insurance),
3. Reassessment of fiscal values,
4. Refinances that include home equity lines of credit (HELOC),
5. Pre-Foreclosure Auction Bids,
6. Short sale operations,
7. Establishment of the listing price of REOs by asset management companies,
8. Bankruptcy or sale of assets and
9. Loan Modifications.
What kind of BPO is there?
Not all BPOs are the same. Some BPOs are simple outside reports where the real estate agent only has to stop by the property, photograph the property, and fill out the electronic or downloadable form. Other BPOs require the real estate agent to contact the current occupancy, listing agent, or use a manual coded lock box to access the property. Inland BPOs require more information to be provided to the lender. This information includes a complete list of damage to the property, as well as the cost to repair the property to average condition relative to surrounding properties in the property’s neighborhood.
The ins and outs of how to fill out the BPO form, how to select comparables, how to follow BPO company guidelines, how to fill out form adjustments that require them, and many other fun aspects of the BPO/REO business are all topics for additional articles.
Stick around for more articles on the BPO Q&A series.