BPO stands for broker price opinion which is type of real estate appraisal. BPOs are often used to determine the current market value of foreclosure and short sale real estate. Homeowners who intend to refinance mortgages or obtain loan modifications are generally allowed to use BPOs in lieu of traditional property appraisals.
BPO appraisals are conducted by real estate brokers. Depending on the type of transaction involved, brokers can either conduct a drive-by or internal BPO. Drive-by is exactly as it sounds. Brokers drive by the property to gather information regarding the physical condition of the home’s exterior.
Drive-by BPOs are commonly used when real estate has fallen into foreclosure. This appraisal provides needed information to the bank without requiring brokers to interact with homeowners.
Internal broker price opinion appraisals are more involved and require brokers to enter the property. This type of appraisal is more often used when borrowers want to refinance, obtain a loan modification, or enter into real estate short sales.
More extensive information is required for internal vs. drive-by BPOs. These appraisals provide details of interior and exterior condition. Brokers inspect houses from floor to ceiling, along with external elements.
Internal BPOs report room sizes, type of flooring, and condition of walls, countertops, toilets, sinks and tubs. All external elements are inspected including siding, fencing, roofing, swimming pools, outdoor fountains, and hot tubs.
Both drive-by and internal BPO reports include year built, square footage, lot size, property condition, number of rooms. Banks may require information about the neighborhood such as if a homeowner’s association is in place and number of homes for sale, rent, or in foreclosure.
Real estate property values have declined due to the abundance of foreclosure homes. Banks liquidate distressed properties by listing sale prices below market value. This lowers the value of all properties in the neighborhood. Some areas have witnessed 50-percent decline in property value, leaving borrowers owing more than their home is worth.
When banks enter into loan modifications they generally use BPOs to obtain property values. Only in recent months have banks begun offering mortgage principal reduction loan modifications. Having an accurate property valuation can help borrowers shave upwards of 20-percent off their principal balance.
Mortgage lenders are beginning to realize that reducing principal amounts can help borrowers remain in the home long-term and pay back a majority of the loan. Reducing principal sums by 20-percent is more cost-effective than the foreclosure process.
Some states prohibit brokers from receiving payment for conducting BPOs. The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Financial Institutions Reform, Recovery, and Enforcement Act which disallows BPOs from being used as “the primary basis to determine the value” when real estate is used as collateral to secure the home. Always obtain legal counsel to ensure BPO is legal protocol for the type of property and its physical location.
Sources:
Realtor.org – BPO and Frank-Dodd Wall Street Reform and Consumer Protection Act
BPO University : What States Is It Illegal to Conduct BPOs
