BPO vs. an appraisal

BPOs have some key differences from appraisals.

BPOs have some key differences from appraisals.

A broker price opinion estimates the value of a property and is performed by a real estate broker or agent. A BPO is often ordered to estimate property value before a sale, primarily on REO or bank owned properties. BPOs are typically not conducted by certified real estate appraisers due to appraiser licensing requirements.

How is a BPO different from an appraisal?
Appraisals are typically more comprehensive than a broker price opinion. In addition, BPOs can be performed more quickly since they account for less data. These may be used by banks for deciding on a listing price when selling a home, finding an estate price or establishing the current value for an insurance policy. Similar to an appraisal, sellers select a broker who is familiar with the neighborhood because home values tend to vary depending on location.

"BPOs are typically done as a drive-by or occasionally as an internal walkthrough."

BPOs are typically done as a drive-by or occasionally as an internal walkthrough. Both forms of BPO examine the year the home was built, lot size, number of rooms, gross living area, property condition, the surrounding neighborhood and information about the number of homes for sale in the area. These reports also need to include the number of foreclosures in the surrounding area. 

Drive-by BPOs are often used for foreclosures because brokers can gather information without having to contact the property owners. Internal BPOs are more detailed and account for interior conditions, such as ceilings, walls, flooring, countertops, sinks, fencing, heating, air conditioning and roofing, among other features. These are often used for loan modifications or short sales. For short sales, BPO reports are a tool used to reduce principal loan balances because a short sale is more cost-effective for lenders than going through a foreclosure.

It's also important to keep in mind that brokers typically give their estimation of value with the hope that they will be the one to win the listing. Unlike an appraisal, which is conducted by an unbiased third party, BPOs may be biased. Appraisers are required by licensing laws to have no interest or compensation tied to to sales of a property. BPO regulations vary by state, if any exist at all. 

Why professional appraisals the right choice
Although BPOs may be appropriate in some cases, an appraisal accounts for all the data and forms a more credible picture of a property's value. Appraisers typically walk through the house, as well as compile data about the property and surrounding neighborhood. A real estate appraisal also includes public records, diagrams and photos. Appraisers are hired by lenders to form an unbiased opinion of a home's value. They also take the property's age, structural features, upgrades, condition and any required repairs into account. 

In addition to the property itself, appraisers examine the surrounding areas for public and private sales. They list at least three, often more, comparable properties that have been sold in the immediate area in the past few months to support their opinion of the value.