What is a Broker Price Opinion?
A broker price opinion is just what it sounds like: An opinion by a real estate expert, such as an agent or a broker, about how much your home would sell for in the current market.
This may sound similar to a home appraisal, but a broker’s price opinion is considered less accurate than an appraisal and in many cases can’t be substituted for an appraisal.
How does a broker price opinion work?
A broker price opinion (BPO), also known as a “broker opinion of value,” is an estimate of a property’s market worth provided by a licensed real estate professional. A BPO price is given as a range rather than an exact number.
The process involves looking at comparable homes that have sold recently, typically within the past three months in the same neighborhood. The home’s value will be arrived at based on a variety of factors such as the size, condition and location of the home.
External, or “drive-by” BPOs are usually used when a lender wants to get a tentative home price on a property that’s headed towards foreclosure. Keeping the inspection “external” allows for a rough valuation, without having to involve the people living in the home.
An internal BPO, on the other hand, requires the cooperation of whomever is in the home, but is a little bit more accurate because it’s more thorough.
Broker price opinion vs. home appraisal
A broker price opinion is faster and cheaper than a home appraisal, but you’re not always allowed to use one as a replacement for an appraisal. The main reason is that an appraisal establishes a home’s value, whereas a broker price opinion aims only to estimate how much it will sell for (its price).
Broker price opinions are most commonly used by homeowners who want to establish a listing price to sell their home, or to decide whether they want to refinance or make improvements. Federal law generally requires that you get an appraisal when taking out a new mortgage for over $400,000.
| Broker price opinion | Home appraisal |
|---|---|
| Based on predictive data | Based on historical data |
| About one-half to three-fourths the cost of an appraisal | Costs $300 to $400 or more |
| Unregulated | Regulated |
| Performed by real estate agents or brokers | Performed by licensed real estate appraisers |
When it makes sense to use a broker price opinion
A broker price opinion can be used in a variety of situations where you or your lender want an estimate of how much your home might sell for, but don’t need a full appraisal. The valuation provided by a broker price opinion can be useful when:
- You’re selling your home and want to know how much you should list it for
- You’re trying to find out whether you have enough equity to refinance
- You’re considering whether to make some home improvements
- You’re applying for an FHA streamline refinance
- You’re applying to get rid of private mortgage insurance (PMI)
- You’re looking into buying a foreclosed home
- You’re headed towards foreclosure or a short sale
- You need to receive or divide assets, for example you’re about to get married or divorced, or there’s been a death in the family
When you can’t use a broker price opinion
- To obtain a purchase mortgage. Lenders are usually required to have a full appraisal of a property before approving a home loan.
- To refinance your mortgage. In most cases, a full appraisal is required for a refinance. However, if your refinance loan is under $400,000 you may be allowed to skip the appraisal and use a BPO instead. If you have an FHA loan or VA loan, you may be eligible for streamlined refinance that doesn’t require an appraisal.
- To apply for a home equity loan or line of credit. Similar to other mortgage loans, you typically need a third-party appraisal to get a home equity loan or HELOC to borrow against your home equity.
There are some new options for conventional loan borrowers that, in certain cases, can be used in place of an appraisal if you don’t qualify for an appraisal waiver:
- Value acceptance plus property data: A professional property data collector will visit the home in person to assess the interior and exterior. The data will then be passed on to the lender, who will accept it without requiring confirmation from an appraiser.
- Hybrid appraisal: A hybrid appraisal involves both a property data collector and an appraiser. But, because the appraiser doesn’t visit the home in person, this method is only allowed in special cases.
Pros and cons of a broker price opinion
Pros
- A BPO can be quicker than an appraisal. In an active real estate market with many purchases and refinances, appraisals can be hard to schedule.
- A BPO costs less than an appraisal. BPOs can cost a fraction of the price of an appraisal.
- A BPO can be a substitute for an appraisal in certain cases. A BPO can sometimes be used by lenders for a foreclosure or short sale, or for a borrower’s request to cancel private mortgage insurance (PMI).
Cons
- A BPO isn’t always as accurate as an appraisal. An appraisal is done by a licensed, certified appraiser rather than a real estate agent or broker.
- A BPO can’t always be used as an alternative to an appraisal. Some mortgage transactions require an official appraisal rather than a BPO, particularly for a home purchase.
- A BPO may be considered subjective. A BPO is done by an agent whose commission is based on the sales price, rather than an objective, third-party professional.
- A BPO may be restricted by some state and federal laws. State laws vary on when and how a BPO may be used.
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