Broker Price Opinion Defined

A BPO is an estimate of the probable selling price of a property. It includes an inspection of the subject property, subject neighborhood inspection and analysis, local and regional market information and trends, and a description of comparable properties that are similar to the subject property. This method of estimating a selling price has similarities in methodology and report appearance to a Comparative Market Analysis and, to a lesser degree, an Appraisal. Real estate brokers and agents generally perform BPOs for a fee.

BPOs offer a fast turnaround time (generally 1 - 4 days) compared to an appraisal (generally 1 - 2 weeks). BPOs are also more cost effective (typically $30 - $100) than an appraisal (typically $250 - $450) for many valuation needs. While the uses of BPOs and Appraisals may overlap in certain instances, they offer different viewpoints into the price or value of real estate and often address distinct needs.

Relevance of BPOs

BPOs have a proven track record of reliability and accuracy, and their use has been established in the mortgage lending industry (by banks, lenders, and all major loan servicers) over a significant period of time. Among the most common uses of BPOs in the industry are the following:

  • fraud check and additional diligence on a completed appraisal
  • internal non-lending purposes such as portfolio valuation and due diligence
  • by buyers and sellers of loan portfolios in secondary market transactions, as due diligence and to help establish the purchase and sales price of a portfolio
  • due diligence and disposition analysis on distressed loans, including loan modification, short sales, REO sales, and foreclosure avoidance efforts
  • PMI removal, refinances, HELOC, and home equity loans (where allowed by FIRREA)

Contrary to characterizations that have been made, financial institutions generally do not use BPOs in lieu of an appraisal for purchase money loan origination purposes, except to the limited extent specifically permitted by Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA").

BPO Accuracy and Suitability

Real estate brokers and agents are often the most well-informed and up-to-date (relevant) sources to provide real estate pricing information. In particular, an integral part of estimating the cost of loan modification versus foreclosure in today's distressed markets in order to establish a homeowner's eligibility for a loan modification program is the expected REO disposition price of the underlying property; this is information that a real estate broker or agent is perfectly suited to provide in the form of a BPO.

According to studies by valuation companies and the reports of industry participants, BPOs are generally close to appraisals in accuracy and often provide a more appropriate viewpoint (on a timelier and more cost-effective basis) for their intended purposes.

REVAA members and financial institutions require that BPOs meet stringent quality assurance metrics before they are accepted, and numerous industry groups promote BPO training, certification and standards.

BPO Standards and Guidelines

In addition to the quality assurance programs administered by REVAA member companies and other valuation providers, BPO Standards and Guidelines ("BPOSG") have recently been introduced that provide a comprehensive framework for the preparation of BPOs on a national level. The BPOSG include suggested practices for the selection and utilization of comparable properties, pricing considerations, the use of photographs and ethical and competency considerations. The BPOSG were developed by a BPO Standards Board ("BSB") comprised of BPO subject matter experts from leading BPO companies (including a substantial portion of REVAA's members) as well as experienced BPO practitioners.

Recent Recognition of Importance of BPOs

The U.S. Treasury Department recently recognized BPOs as an important valuation tool in the Home Affordable Modification Program, which could provide loan modifications to 3 to 4 million homeowners nation-wide allowing them to stay in their homes and avoid foreclosure.

In addition, the FDIC has recognized the use of BPOs to establish loan-to-value ratios as part of its Loss Sharing Proposal to Promote Affordable Loan Modifications and the Federal Reserve Board has adopted BPOs as part of its Homeownership Preservation Policy for Residential Mortgage Assets. Further, Title XI of FIRREA as well as the proposed Interagency Appraisal and Evaluation Guidelines both make clear that BPOs are appropriate in a wide range of circumstances.

Recently the use of BPOs was considered at the state level in Nevada. Understanding the importance of BPOs in addressing the growing need for multiple perspectives of value in the real estate markets, legislation was passed that clearly describes a broad range of situations in which BPOs are an appropriate valuation tool (generally, for most purposes other than as the sole basis for a lending decision). Pursuant to this legislation, a compromise was reached that meets the goals of the appraiser and broker/agent communities, as well as the mortgage lending industry.

Need for BPOs

BPOs have become an important and different source of information for the real estate industry and, increasingly, for government programs intended to aid the economy and help homeowners avoid foreclosure.

Limiting financial institutions to the single valuation perspective of an appraisal presents very real risks, especially in today's challenging economic environment where real estate values are extremely dynamic and there is a heightened need for multiple valuation perspectives.

BPO's, AVM's and other alternative valuations are vital and necessary tools that reduce costs, increase speed and can enhance accuracy. Their usage is beneficial to homeowners (reduced pass-through servicing costs), mortgage investors (decreased cost of due-diligence) and credit risk departments (to verify appraisal accuracy).

According to industry estimates, over 10 million BPOs are performed annually across the country. BPOs provide critical information for decisions and have been widely adopted as a valuation tool in the mortgage industry due to the fast turnaround time, cost effectiveness, and accuracy of BPOs. Contrary to some reports, lenders are not using BPOs in lieu of an appraisal for loan origination purposes.

More information

More information about BPOs and/or the real estate valuation industry can be found in our Industry Awareness area.