A Broker Price Opinion Guide

03.03.2023
957
15 min.

When buying or selling a home, buyers and sellers often come across several industry terms. A BPO, or broker price opinion, is one such word.

A Broker Price Opinion Guide

A broker's judgment of value is not the most common way to determine how much a house is worth, but it can be informative in some situations. A broker's price opinion might be helpful if, for instance, you are learning how to get rid of PMI. It is also possible that your mortgage lender will seek a BPO on your behalf if you need to catch up on payments. In addition to foreclosures, BPOs are used by lenders in distressing circumstances.

To help you and your mortgage lenders make informed decisions, here is some information about broker price opinions that every homeowner should know.

What is a Broker Price Opinion?

A Broker Price Opinion (BPO) is a professional estimate of how much a piece of real estate is worth. It can help determine the listing price for a home, and it is frequently employed in the event of a foreclosure or short sale. It has similar properties to comparative market analysis. Lenders usually ask brokers for their price opinions, and real estate agents use Comparative Market Analysis (CMA) reports finding properties to list.

Real estate professionals or brokers will use their knowledge to price a distressed property based on several characteristics to get a BPO. An experienced local real estate broker is the typical person to conduct a BPO. They determine home values based on comparable homes sold recently. Lenders thinking about a short sale or foreclosure will often ask a broker to determine how much the property is worth. When planning whether to approve a loan modification, a mortgage company may also look at the broker's evaluation.

The Role of a Broker Price Opinion (BPO)

BPOs can be helpful in several different scenarios, including foreclosure and short sales. If the seller is going through a short sale or foreclosure, they may prefer a BPO because it is more likely that the house will be sold right away. A BPO can be requested by anyone interested in the property being evaluated. It could be a lender, a loss mitigation company, a mortgage company, or a property owner.

In case of a foreclosure or short sale, broker price opinions work as the buyer or seller requests. You can get an appraisal, not a broker price opinion if you need a thorough assessment of your home's value. Talk to a mortgage broker to determine if a BPO is the best. A broker or real estate expert will use real estate comps and other data, such as the home's age and property size, to create a BPO comparable to a CMA. Home valuation findings from BPOs differ visually from those from traditional appraisals. Some BPOs, such as external BPOs, inspect only the outside of a house.

No matter that a broker price opinion is a useful tool, the president of the Appraisal Institute, Jefferson L. Sherman, said that BPOs are not acceptable for mortgages sold to Fannie Mae or Freddie Mac or guaranteed by the Department of Veterans Affairs (VA), the Federal Housing Administration (FHA), or the Department of Agriculture (USDA).

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Pros and Cons of BPO

Pros

  • A BPO can be used as an alternative to an appraisal. Most lenders sometimes use a BPO when foreclosing or selling a short-sale property or when a borrower requests to cancel PMI.
  • Sometimes a BPO can be completed more quickly than an appraisal. Schedules for professional appraisal practice can get tight in a real estate market with plenty of sales and mortgage loans refinancing.
  • If you need an estimate, BPO professionals can provide one that considers local market factors. BPO pricing is more of a range than a specific number, but it is still helpful because it is based on what a real estate expert knows about the market trends.
  • BPOs are more affordable than appraisals. Compared to the expense of a review, a BPO may be far more affordable.

Cons

  • A BPO is arbitrary. Instead of an impartial third party, a sales agent earns a commission tied to the final sales price when conducting a BPO.
  • Some local and state laws and federal statutes may limit what a BPO can do. Each state has different restrictions on how and when to use a BPO. You cannot use a BPO for federally-backed loans, like USDA loans.
  • An appraisal may be more reliable than a BPO. Licensed, certified professional appraisals perform the examination and consider recent sales instead of a real estate agent or broker.
  • There are some situations in which a BPO cannot replace an appraisal. When obtaining a mortgage in a homebuying process, an official appraisal is often required instead of a BPO.

Internal and External BPO

Broker price opinions might be either internal or external. By comparing and contrasting their features, you can determine what suits your needs the best.

  • Internal BPO. During an internal BPO, a real estate agent will go to a home and measure and inspect its many parts to make a fair assessment. The broker looks at the inside of the property, takes measurements of the rooms to get the correct sizes, and counts the number of bedrooms, bathrooms, and other spaces by hand. Because the agent could see the home's interior, an internal broker price evaluation is typically far more precise than an outside one. When agents use an internal BPO, they can better understand the floor plan's condition, facilities, and usefulness.
  • External BPO. In contrast to an internal BPO, which evaluates the property from the inside and the outside, external BPOs or drive-by BPOs are performed by a broker who only looks at the property from the outside. A broker might check some official facts regarding the home, such as the total square footage and the number of bedrooms. External BPOs (drive-by BPOs) are more common than internal BPOs and must be more accurate.

How BPO Differs From a Real Estate Appraisal

Both home appraisal and BPO have their benefits. They significantly differ in the time and costs you spend to determine your home value.

When it comes to real estate, a certified appraiser is the one who performs the home inspection, while a real estate professional and broker performs the BPO. Insisting that appraisers achieve minimum standards in training and experience significantly boosts valuation reliability. Moreover, the full appraisal is generally considered to be more objective. It allows you to evaluate homes depending on market conditions for a home loan more accurately.

Compared to appraisals, BPOs have a lower ordering cost. Most inspections cost between $300 and $400 for single-family homes and can go as high as $600 for multifamily dwellings. When compared to in-house employees in-depth, BPOs may cost half lower and cost your personal finance less. It usually takes at least a week or two to finish the substantive job, which can include specific results through appraisals. The time needed to run an external or internal BPO may be shorter, and it is possible to do it in just one day.

Homeowners or people who want to buy a home can ask broker-price opinion companies for a BPO. The best-known national businesses that provide this service are Equator, LRES, Clear Capital, Pro Teck Valuation Intelligence, and Residential Real Estate Review. You can also get a list of qualified BPO suppliers who hold the NABPOP BPO certification by contacting the National Association of Business Process Outsourcing Professionals (NABPOP). Although the price of this service varies greatly by region, it typically ranges between $50 and $300. Before selecting this alternative, you should investigate whether BPOs are permitted in your state.

If you want to refinance your house, you can ask your lender to accept a BPO. Most mortgage companies will only approve a refinancing loan if you have at least 20% equity. Home equity refers to the amount by which the current mortgage balance exceeds the property's fair market value. You may need a professional appraisal to determine if your home is worth it. While a BPO might give you a good idea of your home's value, a lender may insist on a full assessment.

FAQ

Can I cancel my PMI if my home's value increases?

If your equity is at least 20% and you last refinanced for a cash out a while ago, you may be able to cancel your PMI. Completing your PMI premium may entitle you to a refund if you refinance.

Can PMI be removed early?

Yes. If you have made extra mortgage payments that bring your principal mortgage balance down to 80% of the home's original value, you may be eligible to request cancellation of PMI.

Can I get rid of PMI with an appraisal?

Paying for a second opinion on value could be worthwhile here. After five years of ownership and a loan-to-value ratio of no more than 80%, you can ask for your private mortgage insurance (PMI) to be taken away.

How can I get rid of PMI without taking 20% off?

With lender-paid PMI, you can skip the 20% down payment and the PMI altogether. However, your mortgage rate will be higher for the loan's duration. Some borrowers like the "piggyback" option, in which a second mortgage loan is used to cover part of the 20% down payment needed to avoid private mortgage insurance.

How accurate is a broker's price opinion?

According to studies, the accuracy of BPOs is comparable to that of appraisals. BPOs can be obtained at a lower cost and in a much shorter amount of time.

Who generally writes a broker's price opinion?

Broker price opinions, or BPOs, are reports made by agents, brokers, and appraisers licensed in real estate. A behavioral performance objective is an informal evaluation. A BPO is also known as comparative market analyses (CMA), but in most cases, you will compensate the real estate agent for their time. 
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