The last few years have been filled with a host of new abbreviations and terminology in the real estate market that have not been common 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 do.
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 submission in order to establish the fair market value of the property and for buyers looking for the bargain 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 real estate agents have in determining the market value of a property. BPOs are just a fancy word for a CMA. They are more structured in terms of guidelines that an agent must follow and require photos of the property in question and the comparables used in the report, as well as any property damage.
Why do banks use BPO instead of certified appraisals?
Banks have been hiring real estate agents for years to grant full BPOs on properties where they are lenders. In the world of BPO and REO (real estate owned, properties that have been foreclosed and are now owned by the bank), BPO and CMA are used interchangeably, especially when referring to an indoor BPO. The terminology varies from one lender to another. 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 order, while most certified appraisals cost $ 350.00 or more per order. The rate will depend on the type of order (exterior / interior), the proximity to the property and the delivery time.
What are BPOs used for?
There are a variety of reasons why a lender would request a BPO. These reasons include:
1. Default of the borrower,
2. Elimination of PMI (private mortgage insurance),
3. Reassessment of tax values,
4. Refinances, including Home Equity Lines of Credit (HELOC),
5. Pre-foreclosure auction bids,
6. Short sale transactions,
7. Establishment of listing prices for REOs by asset management companies,
8. Sale of property and bankruptcies and
9. Loan modifications.
What type of BPO are there?
Not all BPOs are the same. Some BPOs are simple exterior reports in which the real estate agent only has to go through 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 safe to access the property. Indoor BPOs require more information to be provided to the lender. This information includes a complete list of property damage, as well as the cost to repair the property to bring it 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 the BPO company guidelines, how to complete adjustments to the forms that require them, and many other fun aspects of the BPO / REO business are topics for additional articles.
Stay tuned for more articles on the BPO Q&A series.