BPO is the industry-accepted acronym for broker price opinion. This type of real estate appraisal is often used by banks to obtain current market value of distressed properties such as foreclosures and real estate short sales. BPOs are also used when property owners require loan modifications or want to refinance mortgages.
BPO appraisals are performed by real estate brokers. Depending on the type of information required by lenders, brokers can either conduct a drive-by or internal BPO. Drive-by literally means brokers drive by the property to assess exterior condition.
Drive-by appraisals are typically used for real estate that has entered into foreclosure because they allow brokers to gather sufficient information without having to interact with foreclosed property owners.
Internal BPOs require detailed property information and require brokers to gain access to the property. Internal real estate appraisals are commonly used when borrowers enter into mortgage refinance, loan modifications, or short sales.
Brokers gather information about the interior and exterior condition. Brokers must accurately report square footage, room sizes, condition of ceiling, walls, flooring, plumbing, countertops, sinks, tubs, AC and heating units, fencing, roofing, siding, swimming pools, and hot tubs.
Both internal and drive-by BPO reports include year built, lot size, square footage, number of rooms, and property condition. Banks may also require information pertaining to the neighborhood where the property is located. Mortgage lenders often need to know how many properties are listed for sale or rent in the area, as well as the number of properties in foreclosure.
Property value assessments encompass many elements including the number of foreclosure properties within a 5-mile radius. When a multitude of foreclosed homes are present, property values of all homes decline. Some areas are currently witnessing property value declines of 50-percent which has left numerous homeowners owning more than their house is worth.
Banks often utilize BPO appraisals when borrowers request loan modifications. In recent months, lenders have begun offering modifications which reduce the principal balance. Banks are starting to realize that when principal amounts are in-line with actual property values that borrowers are more likely to remain current with loan payments and capable of repaying the majority of the loan.
Accurate BPO appraisals may reduce principal loan balances by as much as 20-percent. While this amount is substantial for mortgage lenders it is still more cost-effective than the process of foreclosure.
Borrowers requiring property appraisals should make certain BPOs are legal within their state. The Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits broker price opinion appraisals from being used as the primary basis for determining property values when real estate is used as collateral to secure the loan. It is always best to consult with a lawyer or real estate broker to ensure BPO is the acceptable and legal protocol.
