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What is a BPO?

What is a BPO?

I was asked by another Realtor not too long ago, "What is a BPO?  I've heard of it, but I have no idea what it is."  In hopes of helping fellow Realtors as well as any confused homeowners, I'll explain.

BPO stands for "Broker Price opinion".  It's a fancier version of a CMA, only BPO's are done specifically for banks.  What happens is that when a homeowner has stopped making their mortgage payments, the lender will hire an agent to perform a BPO on the property in question.  Depending on the bank (and the property), a BPO can require photos to be taken of the exterior and/or interior of the home.  The Realtor then submits these photos, along with their assessment of the property's current market value.  It's the Realtor's job to perform a BPO to the best of their ability, which often means that they do market research on the property's neighborhood, perform a full CMA on the property and include that data in their findings, and even make assumptions on how much repairs would cost (if any are needed).  Once the Realtor has all of this information, they submit it to the bank who requested it.

The point behind a BPO is sometimes as mysterious as the banks themselves these days.  It would seem reasonable that the bank wants to know a property's market value, especially if the property will foreclose soon.  Typically, the bank will try to sell the property for an amount higher than what the BPO came in at.  This is known as a short sale - when the homeowner will do ANYTHING to sell it, but the bank has to approve of the sale of the home first.  Short sales rarely sell at all and almost always result in foreclosure.  Once the property is foreclosed, the listing price on it may be closer to the BPO amount, but it depends on several different things, including the lender, the market and how many mortgages are on the property.

Hope this information has helped, and maybe the next time that someone wonders what a BPO is, they'll stumble upon this blog!

Comment balloon 5 commentsShannon Moore • March 25 2009 11:42AM

Comments

When I first looked at the title, I was like really...someone doesn't know what a BPO is? But I got to thinking about when new agents join our office and how many questions I get like this. Would it be ok if I passed your information on?

Posted by Natalie Rowe, Portage, MI (RE/MAX Advantage) over 8 years ago

Great Job in explaining it the simple way, I just wish the banks/lender would market according to BPO

Posted by Petra Norris, Realtor, Lakeland FL Homes for Sale (CDV TransAtlantic, Inc.) over 8 years ago

This was one of the topics discussed during our sales meeting today. And several of us expressed extreme frustration and the inaccuracies of BPOs we've seen.

Many of us have challenged BPOs for the following reasons:

1. Wrong comps used (in small cities, one street or highway separation can mean a world of difference, like comparing Beverly Hills with Harlem)

2. BPO did not address condition of the property which is obviously in serious disrepair compared to surrounding or select comps

3. BPO agent didn't bother contacting listing agent who could have provided copies of reports, or insight that would have rendered that BPO to be more useful to the bank. Over-pricing a property doesn't serve the bank's interest at all.

Posted by Pacita Dimacali, Alameda/Contra Costa Counties CA (Alain Pinel) over 8 years ago

What bothers me about the BPOs is that so many times the agent doing them is from another county and does not have a clue about the pricing in the area.

Posted by Sandy Childs, Realtor - Spartanburg, SC (Keller Williams Realty) over 8 years ago

Natalie-Sure thing, go ahead and pass it on to anyone you like :)

Petra-I'm with you on that one!

Pacita-I'll try to address each of your concerns individually.
1. An an urban area the comps should be no more than a half mile away, suburban a mile away and rural no more than five miles away. The neighborhoods should also be of similar homes. I know what you're saying though how even on the same street homes can be very different. That's what it's important to have an agent that is very familiar with the area.
2. In every BPO there is a drop down menu for the condition of the property. The choices are-poor, fair, average, good and excellent. Every effort should be made to compare homes of similar condition.
3. The BPO agent is not allowed to talk to the listing agent at all regarding the property other than to get the code for entrance. The BPO is supposed to be an independent evaluation and should not be influenced by the list agent in any way.

Sandy-I agree this is not a good idea. We have a 35 miles radius that we service and specialize in, if we get a BPO out of our area we will refuse it. It does not help anyone to take BPO's where you have no knowledge of the area.

Here are some general guidelines when doing a BPO:

BPO Guidelines
1. Provide a realistic market value for the subject; strongly considering property condition and current market conditions. Comparables MUST support your indicated value.
2. Use comps from the same neighborhood, block or subdivision. If comps are greater than .5 mile from the subject in an urban or suburban area or greater than 5 miles in a rural location, an explanation is required.
3. If sold comps are greater than 6 months old, explain.
4. If the market is primarily REO / Short Sale, indicate this in your comments and use comps that are indicative of current market conditions
5. Do NOT approach occupants or discuss potential value, comps or reason for the valuation with anyone but the company that assigned the BPO.
6. BPO cannot be performed if you or your office is currently listing the subject or if you or your office has completed a BPO on the subject for any customer in the past 90 days
7. Condition is defined and should be reported as follows
Poor: Not habitable, severely damaged from fire, flood, vandalism or other forms of destruction
Fair: Repairs needed but habitable and not typical for the neighborhood
Average: Minor cosmetic or no repairs needed, very typical for the neighborhood
Good: Superior and has above average amenities for the neighborhood
Excellent: Significantly updated home, or newer construction, and is noticeably superior to a typical home in the neighborhood
8. Repairs should be itemized and include those repairs that are needed to bring the property from the present "As-Is" condition to average marketable condition for the neighborhood.

Posted by Shannon Moore, Realtor, Sarasota & Charlotte (Green Lion Realty) over 8 years ago

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