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- BPO stands for "broker price opinion," which is the approximate dollar value assigned to a property by a real estate professional.
- BPOs are most commonly used to set listing prices, but they can also be used for evaluating estate values and helping homeowners who want to refinance their mortgages.
- While a seller will use a real estate agent to set the BPO, the lender typically requires a buyer to pay for a licensed appraiser to determine the home's value.
Arguably the most eye-catching part of a real estate listing is the price attached to the property. Who sets that number, though? If the home seller is working with a real estate agent or broker to handle their transaction, the list price of the home is likely the broker price opinion, or BPO.
What is a broker price opinion?
A broker price opinion (BPO) is a real estate professional’s estimate of a property’s value. It is an opinion, but one often backed up by the selling prices of comparable homes in comparable neighborhoods. BPOs are most often used when setting the list price of a property being put on the market, similar to a comparative market analysis. You’ll also see BPOs in the case of a foreclosure sale or a short sale.
Types of broker price opinions
The two main types of BPOs include:
- Internal BPO: An internal BPO involves a real estate agent spending time inside the property to evaluate the home’s condition, take measurements and capture photographs.
- External BPO: An external BPO is much less involved. With this type of broker price opinion, the real estate agent doesn’t even enter the home. Instead, they assign a value to it based on the outside of the property.
While typically used in the listing agreement a seller signs with an agent, BPOs can also be employed in valuing an estate or financial assets, or by homeowners thinking of refinancing their mortgages or wanting to get their private mortgage insurance premiums lifted.
How broker price opinions work
To determine the broker price opinion, a real estate agent or broker will use their expertise to assign a dollar amount to a property based on certain factors. A broker who is familiar with the local housing market normally performs a BPO. They conduct a comparative market analysis to figure out what buyers are likely willing to pay for the property.
“Usually, the agent does this as part of their listing agreement when selling a house,” says Rocke Andrews, past president of the National Association of Mortgage Brokers and owner of Lending Arizona, a Tucson brokerage. “They look at similar properties that have sold recently and provide an estimate of what the home should be listed for.”
In the mortgage lending process, however, BPOs are not the go-to method for determining a property’s value. In most cases, a lender will order a professional appraisal for the property to determine its value, instead of a BPO.
That’s because broker price opinions are not accepted for mortgages sold to Fannie Mae or Freddie Mac — as most of them are — or guaranteed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or Department of Agriculture (USDA), according to Jefferson L. Sherman, former president of the Appraisal Institute and founder of Sherman Valuation & Review in Cleveland, Ohio.
“There are 14 states where BPOs are supposed to only be used for the purposes of providing a buyer, seller, prospective buyer or prospective seller with a listing or purchase price,” says Sherman. “However, each of those laws is nuanced.”
How appraisals and BPOs are different
While BPOs and appraisals might sound similar, several important characteristics set them apart:
- Expertise and training: Sherman points out that becoming an appraiser comes with a fairly rigorous set of standards. “Appraisals are conducted by duly certified valuation professionals who have met extensive education, experience and testing standards in valuation, have demonstrated their valuation competency by passing a national exam and adhere to generally accepted uniform valuation standards,” he says.
- Vested interest: A real estate professional will likely receive a commission based on the home’s sale price, so it’s to their advantage to set a price on the high side. That means that a BPO might be a bit inflated. In contrast, an appraiser is paid solely for the job of determining the property’s value, which limits any potential conflict of interest.
- Cost: Broker price opinions are also less expensive than the cost of an appraisal. A BPO costs roughly $50 or so, according to Andrews, while an appraisal can run anywhere from $300 to $450 or more.
When to get a broker price opinion
A BPO is most helpful in the early stages of the real estate transaction when setting the list price of a home. The home seller gets an understanding of what the property will command, and the buyer gets an understanding of what they will need to pay to own it.
However, in certain situations, such as a foreclosure or short sale, BPOs can play an important role that’s accepted on the institutional level. “Back in the real estate downturn [of 2006-09], there were so many foreclosures and properties on the market, lenders would use these due to a faster turnaround time and lesser fee,” says Andrews.
That thinking still applies today, albeit in a much healthier housing market. Sherman points out that Pennsylvania approved a law that “says that BPOs cannot be used for any type of mortgage purpose, except for short sales and pre-foreclosure work.”
If you’re a buyer, obtaining your own broker price opinion often makes sense when you’re:
- Buying a financially distressed property. Brokers can often offer a more accurate valuation when a home is in foreclosure but exists in a neighborhood with good comparables.
- Making an all-cash offer and/or trying to close quickly. Getting a BPO on which to base your bid is often faster than hiring an appraiser.
- Working with a lender who allows BPO reports. Not all mortgage lenders do, or their states prohibit it, so you may not be allowed to use a BPO assessment in lieu of an appraisal.
How to get a broker price opinion
The easiest way to get a BPO is by asking your own Realtor or real estate agent to assess the value of the home. However, you can also use most real estate agents in your area.
You may also want to consider searching the National Association of BPO Professionals directory instead. Just enter your zip code to see a list of available specialists in your area. This option allows you to choose a professional who may offer more objectivity than your own agent.
Your broker will schedule a time to look at the home and deliver a report. Be sure to remember the difference between an internal and external BPO; if you have made significant upgrades to the home such as a kitchen remodel or a bathroom renovation, you’ll want to make sure those changes are accounted for when determining the property value.