Broker price opinions aren’t the most common method for assessing a home’s value, but they can be useful.
If you’re hoping to cancel your private mortgage insurance, for example, a broker price opinion may come in handy. Or, if you’re behind on your mortgage, your lender may request a BPO without you knowing. Lenders also use BPOs in cases of foreclosure and other hardship situations.
If you’re a homeowner, here’s what you need to know about broker price opinions and when you (or your mortgage lender) might use one:
What Is a Broker Price Opinion (BPO)?
A broker price opinion is a real estate professional’s estimate of a home’s potential sale price. Brokers base these assessments on various details of the home, including its condition, age and features, as well as outside factors — like the neighborhood, area market conditions and comparable property sales nearby.
There are two types of BPOs:
— External or drive-by BPOs. These only consider the home’s exterior condition and basic data available in property records and the multiple listing service. External BPOs are typically used when the agent does not have access to the house or when the homeowner is unaware a broker price opinion is being conducted.
— Internal or full BPOs. These are more thorough evaluations, as they take into account both the home’s interior and exterior. The broker will physically enter the home, take pictures and observe any damage, neglect or recent improvements.
Once the broker has finished their physical inspections and research of the local market, they’ll create a two- to three-page report detailing their findings, including the estimated value they assigned the home.
When Is a Broker Price Opinion Used?
BPOs are most often used by mortgage lenders — typically in cases when a borrower is behind on their payments. The lender will use the BPO to assess the property’s value (in comparison to the balance left on the mortgage) and determine the best path forward. Often, this means foreclosing on the home or seeking a short sale.
According to Bill Gassett, a real estate agent with RE/MAX Executive Realty in Massachusetts, BPOs have been most common “during times where there have been more foreclosures and short sales. Lenders and banks would often need a quick market evaluation done and would order a broker price opinion to get a quick idea of where their asset stood in the current real estate environment.”
Lenders might also use broker price opinions when a homeowner applies for a home equity line of credit (HELOC) or if you want to modify your loan — meaning change its terms due to financial hardship.
[Read: Best Home Equity Loans.]
Consumers can use BPOs, too, in some instances. You might use one when going through divorce or settling a family member’s estate to gauge how much a property may sell for. If you wanted to cancel private mortgage insurance — an option once your mortgage balance is 80% or less of your home’s value — you might also seek a BPO to prove your home’s current value.
Keep in mind, though: Lenders won’t always allow this, so be sure to check with your mortgage company first. In many cases, they may prefer a full appraisal before canceling your PMI.
BPOs vs. CMAs
Broker price opinions and CMAs — comparative market analyses — are essentially interchangeable terms. Both use a home’s condition, age, features and nearby market data to assign a potential market price to the property.
The only difference is that BPOs are typically used by lenders, while CMAs are used by the agents themselves — usually to win a listing or to set a property’s listing price.
“A CMA is performed most often by a real estate professional to determine the price,” says Matt Good, managing broker at Premier Sotheby’s International Realty in Lakewood Ranch, Florida. “It’s also used by an agent representing a buyer to help those clients feel comfortable in an offer they might make.”
BPOs vs. Appraisals
Broker price opinions and appraisals, while both strategies for assessing a home’s value, are not as similar. For one, there’s quite a price gap. The typical real estate appraisal costs anywhere from $300 to $450 — sometimes much more in higher-cost markets. A BPO can cost half that (or, in some cases, may even be free).
There’s a difference in speed, too. Most appraisals take at least a week or two to complete, while BPOs take just a few days.
[Read: Best Mortgage Refinance Lenders.]
“A BPO provides a fast estimate done by a local real estate agent or broker,” says Steve Johnston, founder and chief executive officer for Ideal Agent. “A full appraisal is more expensive and time-consuming than a BPO but is required to get a mortgage.”
Johnston is right: Appraisals are required for most mortgage loans — at least those that are federally backed, like FHA, VA and USDA loans. Conforming loans, which adhere to Fannie Mae and Freddie Mac guidelines, require appraisals, too. The Dodd-Frank Act actually prohibits the use of a BPO in place of an appraisal on any residential purchase loan.
“The information available within an appraisal is much more comprehensive,” says Shmuel Shayowitz, president of mortgage lender Approved Funding. “It provides a lot more due diligence that mortgage underwriters can use to help support market value and price trends.”
BPOs and appraisals also differ in who can conduct them. Appraisals can only be performed by licensed real estate appraisers who undergo thorough training. They also must adhere to certain federal and state regulations and an ethics code.
BPOs, on the other hand, are much less regulated, and there are no licensing or federal standards that brokers might adhere to when producing them. Because of this, appraisals are generally considered less biased.
“A BPO is created by a real estate broker and is solely their opinion of value,” says Mark Walser, president of Incenter Appraisal Management. “Appraisals are not only done by experienced professionals, but they don’t have a stake in the transaction.”
The Value in BPOs
Despite their limited uses, BPOs still have value, real estate professionals say.
Their speed and lower cost, for instance, can make them good options for quick assessments of value. They can also help lenders if a borrower is behind on their mortgage or wants to cancel PMI.
As Walser puts it, “BPOs can certainly provide some context around the potential general value of a property — however, they’re not going to be utilized as credible replacements for professional appraisals in any lending transaction.”
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What Is a Broker Price Opinion (BPO) in Real Estate? originally appeared on usnews.com
Update 07/20/22: This story was published at an earlier date and has been updated with new information.