What Is a BPO In Real Estate?
This article tells everything you need to know about BPO in Real Estate from the basic definition to its working.
So, let’s dive into it.
You bought your new house in 2005. It’s been almost 15 years since you’ve been living in this house. Now, you’d want to sell this in another 5 years or so.
But you are totally unaware of its market value. So, you call an old friend of yours whom you know to be in the real estate business.
You ask him the possible options to know about the market value of your house. Your friend suggests you go for something called BPO services.
But you are uninformed about the term. You ask him its meaning and other information related and how would that be helpful to you. Here’s what your friend tells you.
BPO Real Estate: What is BPO?
A BPO or Broker Price Opinion is an estimated value of a property that is often created by real estate agents or brokers.
Though the term is similar to Appraisal, it serves as an alternative to it. This is usually asked by the financial institutions to determine an estimated value of the property they hold the mortgage of, such as lenders or banks.
BPOs are cheaper than appraisal due to the simple fact that the BPOs is a brief evaluation of the property on contrary to an appraisal which a detailed examination of the house.
BPOs are also considered as a suitable option, rather than an appraisal, where applicable, due to it’s less-time taking factor.
An appraisal generally takes 7-10 business days, while a BPO takes just 1-5 business days. The appraisal is rendered to a customer by a third party who is impartial and just.
While on the other hand, A BPO is done by a real estate agent or a broker, as mentioned above.
In cases where there is no need for an appraisal, BPO is preferred because of it being cheaper and more economical than an appraisal.
BPOs are generally ordered by banks on properties that are either in foreclosure or short sale. These are the two most common reasons why a BPO is done.
More than not, banks often ask for BPO valuation from two real estate agents. Some unethical real estate agents may tend to cheat the bank by placing escalated values on houses in a short sale.
To avoid such inaccurate BPO values, the bank tends to hire two separate real agent companies that provide them with the range of values of properties.
Banks have absolutely no reason or requirement to accept the BPO evaluation as the true values of a property in the market.
The BPO evaluation of the property rather serves as an estimate or a guideline that might be needed some other time in the future.
But sometimes, banks have a tendency to use the other higher value of the property as evidence to dodge a loss.
Now it is very important to understand that a broker or a real estate agent can also offer BPO services for free in a hope that when the time comes, they would get the chance to represent the owner by listing the property.
While Appraisal is an impartial evaluation of the property but on the other hand, brokers or real estate agents might offer a higher valuation of the asset in order to make greater profits. Brokers or real estate agents offer a partial or sometimes unfair valuation of the properties.
There are two types of BPO, an interior BPO, and a drive-by BPO, as we call it.
An interior BPO, as the name suggests is a full interior inspection of a property, along with clicking the pictures of the interior and assessing the entire property.
A drive-by BPO is a simple assessment of a home’s exterior along with its photography from outside.
So, if you ever find someone clicking photos of the front of your house, don’t freak out. Though it’s totally okay to be wary of such people BPO is nothing to be scared of and clicking photos are just part of the process.
Now, an agent would not even assess a house’s interior himself/herself. They even may not live in the same country as the property that’s been listed.
They would just be relying on some websites or software with listings of multiple properties. More essentially, in a drive-by BPO, a broker or real estate agent cannot really properly evaluate the property.
The majority of the evaluation depends upon the sales of similar properties within the concerned area.
Factors Used In Evaluation of A Property
Evaluation of the property rendered by an agent or a real estate broker depends upon a number of factors. A simple drive-by BPO cannot account for the real estimation.
Evaluation of the property includes various factors such as the size of the property, size of the structure, number of rooms making up the property, the percentage of wear and tear that must have happened over the years, demand in the area, the location of the property is at and also from the latest sales of three properties similar to the one in an account.
It is the interior BPO which takes into consideration all the above factors while in an evaluation of the property. the price of the property depends upon the location of the property is situated at a prime location, having access to all facilities, or a remote location, isolated from residential areas.
The price is also assessed through the signs of wear and tear in the house if the walls have been damaged over the years.
The number of rooms in the house is also a primary factor in determining the value of the property.
On the contrary, the cost of the drive-by property is easily available on the local multiple listing service or property records.
Some additional information such as the number of rooms or any additional structure on the property is also available on such multiple listing service websites.
The property’s value also depends upon the value of recent sales or listing of similar properties in the same area.
A major difference between BPO and appraisal is that an appraisal considers several factors such as the value of the property at its best use or the potential income that can be generated if the property is given up on rent or the money that would be spent on the property to repair the damages.
On the other hand, BPO only considers taking into consideration the factor related to potential income. Considering anything else other than potential income is not common.
The other difference is that Broker Opinion Price gives an estimated value of the property while the appraisal determines the actual price of the property in the market at the given time.
Also, the price for BPO creation is minimal and can range between $100 and $200. But, appraisal generally costs more and is really expensive, costs between $300 and $400 and in some cases can even go up to $800.
Also, people generally prefer going for an appraisal instead of a BPO if money is not a problem, because, an appraisal is provided by an authentic and certified Real Estate appraiser who would impartially evaluate the price of the property and that too according to market standards with required details and by following certain regulations.
The other reason why appraisal is considered over BPO is that appraisal is required for getting a mortgage of the property that might have been finalized for purchasing and also as proof in the courts.
But, BPO can obviously be considered by those who are not looking to sell their property or are just curious to know the worth of this asset.
Process of Generating BPO
The process surrounding the creation of the BPO is actually simple.
- The client approaches the broker or real estate agent with his/her property.
- The broker or real estate agent gives the property a thorough look through, assessing the interiors, including the number of rooms, the size of the area, any signs of wear and tear that might have to be repaired or renovated.
- The agent or broker then goes through the listing or a list of the latest sales of similar properties in the same area taking into account the price amount of its sales.
- The broker or agent looks for differences in the properties to add or subtract the estimated amount of the particular area in the property being compared to.
- The agent prepares a report stating the trends in the market and the value of similar properties from the listings.
- The estimated amount of the property is deciphered through the report and generally, the service ends with the agent stating the highest price possible at which the property can be sold.
Comparative Market Analysis
More commonly known as CMA, Comparative Market Analysis is the alternate option to BPO for all those who don’t wish to spend a single penny in knowing their house value.
CMA is similar to BPO on many fronts but the only difference is that BPO is generally conducted by big companies and Comparative market analysis is performed by agents and brokers who do it for free for potential future clients whom they expect would come to them first whenever they’d want to sell their property.
Both the comparative market analysis and BPO are conducted by real estate agents or brokers but going for a comparative market analysis does not need all the formalities that would have been needed otherwise.
Additionally, real estate agents or brokers are no professionals when it comes to estimating the market value of the property, unlike appraisers.
The professional experience of agents or brokers comes from continually practicing this estimation job. Also, the appraiser’s course is entirely based on the curriculum which teaches property value determination.
But estimation of the property’s value is a part of the skill that is taught to agents in their certified courses.