What Is a Broker Price Opinion (BPO)?
A broker price opinion (BPO) is an assessment of property value generated by a local licensed real estate agent. It is a key part of due diligence. Not conducting proper due diligence could lead to disastrous results.
Unlike appraisals, BPO reports do not allow for the real estate agent to go inside of a property. The reports are simply based on examination of the property exterior.
The real estate agent is going to complete the report by gathering local community data by acquiring comparable sales and listings within the last 12 months. This allows them to formulate an opinion on the value of the property.
Quite often, the value that the seller provides is different than the value the real estate agent provides after completing the BPO.
Therefore, you should hire a local real estate agent to examine the property that is the collateral for the note. Generally, this would cost between $100-$200. There are also companies you can hire to complete BPOs.
Assessing Property Value
If you choose to do your own research on websites such as Zillow and Trulia, they may not account for certain issues such as the support structure, the nearby surrounding area of the property, or the cleanliness on the exterior of the property.
Using Google Maps can be helpful for identifying features such as bars on windows of other properties in the area. This would imply that you are dealing with a property in a lower income area.
How BPOs Work
The real estate agent prepares a report known as the BPO. The completed BPO report will take about 4-7 days. You must review it when it is completed to ensure accuracy.
BPOs are divided into various sections. They include information about the market condition, marketability, comparable sales (properties which have recently sold in that neighborhood) and comparable listings (properties which are listed for sale in that neighborhood).
The BPO also includes data regarding the price. The three (3) different prices are “as-is”, “as repaired”, and the 30-day quick sale value.
Ideally, it is best to focus on the latter since the agents do not have time to conduct an interior inspection or walk around the property.
However, if you are willing to sit on the property for a little longer, you can consider the first two options.
The real estate agent’s name and contact information should also appear on the BPO.
One important question you may want to ask the agent would be their confidence level in the price provided.
Market Condition
The condition of the market should also be provided (i.e., depressed, slow, stable, improving, excellent). The employment conditions of the neighborhood should be provided (i.e., declining, stable, increasing).
Other elements included are the normal marketing time (number of days), new construction in the neighborhood (listed as a percentage), supply of comparable listings in the neighborhood (i.e., normal, oversupply, shortage), percentage of owners vs. tenants in the neighborhood, and the real estate agent’s comments on the general market condition.
You must be observant when reviewing the BPO. For example, if you are purchasing a non-performing note, but the occupancy is listed as vacant, that should raise some questions you may have for the seller.
Marketability
The marketability section of the BPO includes the type of unit, environmental problems, range of sales in the neighborhood, and whether the property has been on the market in the past 12 months.
Comparable Sales and Listings
The three (3) comparable sales and listings include data such as the proximity to the subject property. Comparable properties in urban areas should all be within one (1) mile from the property. Comparable properties in rural areas should be withing three (3) miles from the subject property.
Other important factors included are the type of property (i.e., single family, multi-family, condo, townhouse, etc.), location (i.e., suburban, rural, etc.), site size (acres), the year the property was built, the number of bedrooms and bathrooms, square footage (ideally, they should be within 10% of the subject property), the basement area (sq. ft. and percent finished), the type of heating/cooling system, and the list/sales price, and length of time on the market.
The list/sales price and length of time on the market will be helpful for anticipating how long it will stay on the market, in the event you had to foreclose on the property.
Broker Price Opinion Companies
You can hire companies to perform BPOs – just vet them well. It is important to confirm that this information provided by these companies is accurate.
There are some real estate agents and BPO companies who generate BPO reports for a living, sometimes hundreds per day. They may become lazy when it comes to acquiring this data or may not be located anywhere near the property.
Opinion
In the last section, the real estate agent will write their opinion. The agent should also include an aerial map of the location of the property, photographs of the property, and the comparable properties.
When observing the photographs of the subject property, you can compare them to the style of the homes for the comparable properties. In the aerial map, identifying places of attraction such as parks and stadiums – this would be a plus.
The agent may include extended comments about the BPO which may specify information about how and why they used the comparable properties.
After reviewing all this information, it may be best for you to call the real estate agent yourself to discuss any questions you may have.
As you can see, the broker price opinion is an essential part of the note buying process. A well-researched BPO will simplify due diligence.
