Searching for a home? You might wonder who sets the prices of all those for-sale properties listed online. Who determines whether that ranch home in the suburbs should be listed at $300,000 or that condo in downtown should have a sales price of $275,000?
In most cases, it comes down to real estate agents and the home sellers with whom they work. Agents provide their clients with what is known as a broker price opinion or BPO. A BPO is a real estate professional’s opinion of what a home will sell for. Sellers rely on this information when setting the sales prices of their homes.
Here we’ll cover what a BPO is, what it is used for and how it differs from an appraisal, as well as different types of BPOs.
Usually, a real estate broker provides a broker price opinion on a home on behalf of the home sellers they are representing. The goal of a BPO is to determine a listing price that isn’t so high that it chases possible buyers away or isn’t so low that it leaves too much profit on the table.
When calculating a BPO, brokers and agents look at nearby home sales. They also consider factors such as the number of bedrooms and bathrooms in a home, a home’s age and condition, its location and its size.
While BPOs are a good way to get an idea of what a home you are selling or buying is worth, mortgage lenders won’t accept them when you or buyers interested in your home apply for financing. Instead, you or the buyers will need to go through the appraisal process before lenders will close a mortgage loan.
It’s easy to get BPOs confused with appraisals. But these two methods of determining the value of a home are quite different.
First, while a BPO represents the opinion of a real estate agent of what a home will sell for, an appraisal represents the determination of an appraiser of what a home is currently worth.
To determine this value, appraisers study the recent sales of similar properties and consider the age, condition and location of a home. They also factor in how well the owners have maintained a home and such factors as the number of bathrooms or bedrooms in a property.
Secondly, when you apply for a mortgage to finance a home, your lender will almost always require an appraisal. That’s because your lender doesn’t want to lend you more dollars for a home than what that property is worth. Lenders will not accept a BPO in place of an appraisal.
This holds true, too, if you are applying for a mortgage insured by an agency of the federal government. Your lender can’t accept a BPO in place of an appraisal for FHA, VA or USDA loans. Lenders must have an appraisal instead of a BPO, too, for loans guaranteed by Fannie Mae and Freddie Mac.
BPOs tend to be less expensive than appraisals. An appraisal will usually cost $400 – $500, though in some circumstances it could cost as much as $600 or even $2,000, depending on the area and home characteristics. A BPO is usually half of this cost, which is why homeowners often request them instead of appraisals when they need to determine the value of their properties.
If you are selling a home, you might request a BPO from your real estate agent. This estimation of what your home will sell for can help you set an accurate asking price for your property, one that will leave you with the most profit.
If you are interested in refinancing your home, you can also request that your lender accept a BPO. You might need an estimate of your home’s value because most lenders want you to have at least 20 percent equity – the difference between what your home is worth and what you owe on you mortgage – in your home before they approve your request for a refinance.
Lenders might still require an appraisal, BPO because an appraisal is considered a more accurate measure of your home’s worth.
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