By Moisés Reyes

BPO- What Is It and When Is It Used?

The BPO, or Broker Price Opinion, is a method used by lenders, mortgage companies, and real estate brokers to determine the estimated value of a property in the current market. Based specifically on the characteristics of the property under consideration, the estimate is submitted in a 2-to-3-page BPO report that includes neighborhood analysis, local and regional market information, and comparable properties.

Typically, a BPO is done when brokers attempt to avoid the costs and delays of an appraisal, which are often unnecessary. Although the two are similar in nature, a BPO is normally associated with REO/foreclosures and short sales and costs considerably less than a full-blown appraisal.

In the case of delinquent mortgage payments or pending foreclosure, a lender will order a BPO, even if they are helping the borrower with his/her situation. This will allow them to obtain a fairly accurate estimate of the current value of the property, which they can then use to compare to the mortgage balance so they can recommend solutions to the borrower.

BPOs are also requested to be done in situations of a refinance for lower rates, home equity lines of credit, home equity loans, due diligence for investors, or requests to eliminate private mortgage insurance (PMI). In general, a financial institution such as a loss mitigation company or mortgage company will order a BPO to be done by a broker or by a real estate agent representing a broker.

The Two Major Types of BPOs

The drive by BPO is the simpler of the two major types of BPOs. In general, its name indicates its requirements, which typically do not entail the broker getting out of his/her car nor actually entering the home. The broker will generally drive by the property, note the features required for the form, and take photographs. Even so, the actual task and the specific form requirements tend to vary considerably depending on the financial institution conducting the estimate and the particular situation. The shortest drive by BPO form with the least required information will nonetheless require about fifteen different items, including location, neighborhood, lot size, visual condition of all individual exterior features, estimated square feet, estimated room count, and conformity to neighborhood and zoning.

The internal BPO is more involved than the drive by BPO. In addition to all the requirements for a drive by BPO, it will probably require square footage and room count to be verified rather than estimated, and unlike the drive by BPO, it will require photographs of all the interior rooms of the home. Also, if the home is occupied, contact with the homeowner or tenant will be required, which in the case of a refinance will probably not pose a problem, but in the case of a pre-foreclosure situation can prove to be tricky. To avoid conflict, care should be taken when meeting with the occupant. The company overseeing the BPO will have their own requirements concerning a situation such as this, but obviously, it helps if the broker is expected and courteous.