A market analysis is a particularly common part of the home selling process; a seller hires a real estate agent to compile a list of properties similar to theirs in order to determine the current market value and finally a sale price. Yet a market analysis is not the only way to determine value. Indeed, it may not even be the best approach when compared to a BPO.
What is a BPO?
BPO stands for Broker Price Opinion and is the market research used by banks in foreclosure sales. A bank will send one – or several – agents a BPO request. Once received the agents visit the property to take exterior –and sometimes interior—photographs. Then, the agents extract a list of similar neighborhood properties (comps), adjust the pricing and determine the market value. While the preparatory process sounds similar to a market analysis, – and truth be told – and the nuts and bolts are identical, a BPO is a highly sophisticated market analysis.
BPOs require the assigned agent to account for improvements, lot features and any visible property damage when a bank is foreclosing or has foreclosed on a home; things rarely accounted for in a market analysis. A BPO is meticulous and more akin to a bank appraisal than it is to a vanilla analysis.
How banks use it
Banks sustain a range of costs during a foreclosure. The BPO helps the bank determine how much of those costs could be recouped in a sale before the property goes on the open market. It’s all about facts and figures.
How often a BPO is done and why
Most lenders have a network of dedicated agents that earn their business; and they deserve this business because they have a history of submitting excellent BPOs and turning listings to sales quickly. The more detailed and complete the BPO, the more likely the bank is to assign that listing to the agent when it transitions to a foreclosure. Thus, submitting acceptable BPOs to a lender has a higher value for many agents than completing a market analysis does for a home seller. BPOs are a clear incentive for an agent to be more detail oriented in his or her report, because the reward is a steady-stream of business, not just a single sale.
Most banks will assign a listing to an agent for 90-days. If the listing does not sell during the assignment, the bank will request new BPOs from other agents and reassign the listing accordingly. This is decisive in determining neighborhood value, because the more often a BPO is done, the more often price adjustments occur.
Breaking down the jargon
The value of a valid BPO extends throughout a neighborhood, and is not tethered to a single property. Essentially the best BPO will always win with the bank, but that doesn’t always mean the BPO with the highest price. Asset managers and lenders will often select the most viable BPO for a successful sale based on complied data from a pool of hungry agents.
The BPO sets the tone for the sales price of a residence, and if the BPO is set low, the neighboring properties are devalued. If the BPO is set high, the neighborhood values remain stable and flourishing. With each price adjustment from new BPO’s, the neighborhood value is impacted. Thus, the “right” BPO means the difference between losing or maintaining value in your home.