Broker Price Opinion vs. Appraisal: Which One is Better?
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Most of the time, when you need to determine a home’s value, you’ll order an appraisal. It’s a key step in buying or selling a home. However, a home appraisal is not the only way to put a price tag on a piece of property — there’s also a method called a broker price opinion.
It’s a cheaper and faster way to put a price tag on a property, though it may not always be the best way to assess how much a home is worth. Below, we break down broker price opinions, how they work and how they measure up to traditional home appraisals.
What is a broker price opinion?
A broker price opinion, or BPO for short, is a cheaper and less rigorous way to determine the value of a property. BPOs can be used in place of an appraisal for specific mortgage-related transactions, such as foreclosures or short sales. Real estate brokers generate BPOs.
The level of detail can differ between broker price opinions. In some cases, the broker will carefully evaluate the exterior and interior of a home. In some cases, the broker will simply drive by a home and estimate its value from an exterior view.
Below are some of the items brokers typically evaluate when completing a BPO:
- Information about the home’s location, building type, and size.
- An overview of the local housing market and its current trends.
- Details about the home and its condition.
- An analysis of at least three comparable homes in the area that were recently sold and another three homes that are currently listed for sale.
- Information about the number of foreclosures in the neighborhood.
How an appraisal differs from a BPO
While a broker price opinion has few rules, a home appraisal is a highly regulated, unbiased estimate of a home’s value conducted by a licensed real estate appraiser. Appraisals are usually required as part of the homebuying process.
To complete an analysis and arrive at a property value, an appraiser gathers details and information about a specific home, its interior and exterior features, as well as nearby homes that were recently sold. The appraisal report delivered to mortgage lenders allows them to determine whether the purchase price makes sense and calculate a borrower’s loan-to-value ratio.
Appraisals typically cost several hundred dollars, ranging from $300 to $400 or more. BPOs may cost less than half the amount of an appraisal, according to Redfin.
When you can and can’t use a BPO
Broker price opinions are generally only used in select cases, generally limited to creating real estate listings in many states, according to the Appraisal Institute. BPOs can usually be completed more quickly than appraisals and often aren’t as detailed in their analysis.
When you might use a BPO
The most common use for a broker price opinion is for setting list prices on properties. Fannie Mae allows BPOs for homeowners who want to give up ownership of their property without going through the foreclosure process; instead, they either opt for a short sale or deed-in-lieu of foreclosure. Once the BPO is completed, Fannie Mae uses the estimated value to provide a suggested list price for the property.
You might also have the option to use a broker price opinion when seeking to cancel your private mortgage insurance. Homeowners with conventional mortgages must pay PMI if they make a down payment of less than 20%. To cancel the insurance policy, the homeowner must prove their home’s value is high enough to give the owner at least 20% equity in the property. Usually, this is done with an updated appraisal. However, Fannie Mae allows the use of BPOs as an alternative to verify the home’s current value.
When you can’t use a BPO
For most cases where a homeowner is looking to buy or refinance a property, lenders will insist on a full appraisal. Appraisals are commonly used in:
- Purchase mortgage approvals
- “Pre-listing assessments,” which can be ordered by home sellers prior to placing their home on the market
- Home equity loan applications
- Refinance applications
“I’ve never had a customer ask me, ‘Hey, can I get a BPO instead of an appraisal?’” said John Stearns, a senior mortgage banker with American Fidelity Mortgage Services in Milwaukee, who frequently handles refinances. “But if they did, the answer is no.”
Pros and cons of choosing a BPO
- A BPO can be completed more quickly than an appraisal.
- BPOs usually cost less than appraisals.
- BPOs can be used in place of appraisals for borrower-initiated PMI cancellation requests, foreclosures, mortgage releases and short sales.
- BPOs aren’t as detailed or thorough as appraisals.
- BPOs can’t always be used as an alternative to an appraisal.
- State laws might further limit or even prohibit the use of BPOs.
The bottom line
Broker price opinions offer a convenient way to estimate a home’s value, but they only work under certain circumstances, such as a foreclosure. Still, if you’re curious about where your lender stands on BPOs, don’t hesitate to reach out to gather more information.
In the meantime, check out LendingTree’s guide on everything you need to know about home appraisals.