BPO Questions and Answers – What is BPO?
The past few years have been filled with many new abbreviations and terminology in the real estate market that were not common since the early 1990s. One of these abbreviations is BPO. BPO stands for Broker Price Opinion. The term BPO conjures up visions of long, tedious analysis for some agents and a gold mine for others. If you understand the process, they are very easy and sometimes fun to do.
BPO vs. CMA
Most real estate agents are familiar with the Comparative Market Analysis (CMA). CMAs are typically prepared for a seller to present a listing to establish the fair market value of the property and for buyers looking for the offer price they will use to purchase a particular home. Knowing how to do a CMA for a buyer or seller is a skill that takes time to develop, but it is one of the most important tools real estate agents have to determine the market value of a property. BPO is just a fancy word for CMA. They are more structured in terms of guidelines for the agent to follow and require photographs of the subject property and comparables used in the report, as well as any damage to the property.
Why do banks use BPOs instead of certified appraisals?
Banks have been hiring estate agents for years to provide full BPOs on properties where they are a lender. In the world of BPO and REO (owned real estate, property that has been foreclosed on and is now owned by the bank), BPO and CMA are used interchangeably, especially when referring to in-house BPO. Terminology varies from lender to lender. The reason banks hire real estate agents to do the BPO for them is that the cost to the lender is much less than hiring a certified appraiser. The average BPO payment to a real estate agent is $35.00 to $100.00 per order, while most certified appraisals cost $350.00 or more per order. The fee will depend on the type of order (exterior/interior), the proximity to the property and the time of completion.
What are BPOs used for?
There are various reasons why a lender would order a BPO. These reasons include:
1. Default of the borrower’s obligations,
2. Eliminate PMI (Private Mortgage Insurance),
3. Reassessment of tax values,
4. Refinancing, including home equity lines of credit (HELOCs),
5. Pre-Foreclosure Auction Offers,
6. Short Sale Transactions,
7. Establishing a quote price for REOs from asset management companies,
8. Bankruptcy or sale of properties and
9. Loan Changes.
What type of BPO is there?
Not all BPOs are created equal. Some BPOs are simple external reports where the estate agent only needs to walk by the property, take a picture of it and fill out the provided electronic or downloadable form. Other BPOs require the estate agent to contact the current occupancy, listing agent or use a manually coded lock box to access the property. Domestic BPOs require more information to be provided to the lender. This information includes a complete list of damage to the property, as well as the cost of repairing the property to bring it into average condition relative to surrounding properties in the property’s neighborhood.
The ins and outs of how to fill out the BPO form, how to select comparable products, how to follow the BPO company’s guidelines, how to make corrections to forms that require them, and many other fun aspects of the BPO/REO business are topics for additional articles.
Stay tuned for more articles on the BPO Q&A series.
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