What Is A BPO?

A BPO is a lending industry term for a “Broker’s Price Opinion”. A BPO is not a appraisal. An appraisal is a much more in-depth report , requiring far more research. Most full appraisals will present property values arrived at using three different methods; the comparative method, the replacement cost method, and the income method. Appraisers are licensed, and as such, their work product is held to considerably higher standards and is, therefore, the accepted standard for accurate valuations in lending and legal situations.

A BPO will give a value based on the comparison method only. Most BPOs rely heavily on the proper selection of comparable properties, selected for their similarity to the subject property. Important features in selection of comparables are age of the home (to identify building materials and techniques), number of rooms, number of bedrooms and bathrooms, living area, size and type of garage, lot size, and overall observed condition of the subject property and its surroundings.

Where full appraisals will include a thorough inspection of both the exterior and interior of a property, a BPO will be based on an exterior inspection only. Sometimes BPOs are based on exterior observations made at a distance, since they may be requested by a lender prior to a foreclosure or other legal action, and without the occupant’s knowledge. Most often, BPOs are requested by a lender as part of a lower-dollar-amount loan or a home equity loan as a way to verify that the property meets the minimum requirements of a particular loan.

The scope and purpose of a BPO (as performed by Shelter Rock Resources) is to gather information from a number of sources, both public and private, and use that information to assess the current value of the subject property. Review and verification of documents pertaining to the property’s history, physical condition, ownership, and modifications will help give a true picture of the property’s value, without trying to “sell” the property or inflate it’s value artificially. A BPO should address both “positives” and “negatives” in an even-handed manner. Though there is a definite place for inspector narrative, it should be kept to a minimum.

BPOs are sometimes referred to as “drive bys”, but that term more correctly describes a type of very limited-scope-appraisal, sometimes performed by bank employees, to verify the barest minimum of information on a property as part of a smaller equity loan. A drive-by essentially confirms that the subject property is still standing, and that it’s worth at least its assessed value.

Outside of the lending industry, a similar report called a CMA may be performed by real estate agents in preparation to listing a home for sale. A CMA (Comparative Market Analysis) will typically compare a property with others currently for sale and those that have recently sold. A CMA is a little less thorough than a BPO, and it’s focus is usually to support the highest possible listing price for the seller. A CMA is almost always a “freebie” provided by an agent as part of a listing presentation.

Who Needs a BPO ?

Mortgage Lenders: BPOs are typically requested by lenders, and are frequently used in the “secondary market” when loans are sold and re-sold. In the primary loan market, under the name of “Property Evaluation”, a BPO may be used as part of a consumer loan process to verify value of a collateral property, usually in an equity loan or LOC.

Trustees: Individuals charged with the responsibility of looking after a property, or properties, for the benefit of a group or an individual. This responsibility can often befall people who are unfamiliar with property values, and can be especially intimidating if the property is located out of their area. Often, as the result of an unexpected inheritance or estate situation, it becomes prudent to “take stock” of the value of a property in order to become familiar with it. A full appraisal may not be necessary, especially if no immediate action on the property is planned.

Attorneys: A BPO is often helpful to an attorney in identifying and evaluating a clients’ property holdings, as an aid in advising them on both short and long term financial planning. Often used as part of a bankruptcy or debt-reduction strategy, a BPO can set a reasonably accurate value of the clients’ property at a considerably lower cost than a full appraisal.

Property Owners & Managers: Out-of-Area property owners and/or property managers may find that a BPO will be a good way to check on the overall condition and value of their properties. An annual or bi-annual documentation of condition of both the property and the neighborhood around it can keep the owner/manage aware of tenant’s treatment of the property and area value trends.

Insurance Agents: Agents may find it more cost effective to have a BPO performed by a third party inspector to verify records on an insured property, as part of either an unusual insurance policy issue or as “standard procedure” to verify property condition prior to a policy renewal. In some cases, it’s good to have an initial inspection performed and “in the file”, with subsequent updates made periodically to keep the file current.