What is a BPO?
A BPO stands for "broker price opinion," and is very similar to an appraisal, although not as involved nor complicated.
Companies and banks hire a real estate broker to prepare an opinion of value. A real estate agent, compares a minimum of three similar properties that have recently sold to your property and adjusts up or down for differences. The final result is an opinion of the market value of your property.
There are two types of standard BPOs: the interior BPO, and a drive-by BPO. In a drive-by BPO, the interior of the home is not inspected and market value is estimated by numbers alone, looking at the comparable sales within the past 3 months. Drive-by BPOs can be accurate but do not take the place of an interior inspection, or a full-blown appraisal.
Why Banks Order BPOs?
The two most common reasons for a BPO value by a bank is either for a home in foreclosure, or a short sale. Banks might request a BPO from two separate real estate companies. A ballpark estimate of value is designed to help the bank to avoid inaccurate values sometimes placed on short sales.
It is possible a bank might use the BPO only as additional information. There are many automatic valuation software systems available, and a BPO could be used as only a supplemental report.
What is an Appraisal?
Appraisals are an important part of the homebuying process. A real estate appraisal establishes a property's market value. Lenders require appraisals when buyers use their new homes as security for their mortgages. An appraisal provides the lender with an assurance that the property will sell for at least the amount of money it is lending
Appraisers and Appraisals
Appraisers are licensed by states after completing licensing coursework and internship hours.
The appraiser is an objective third party, someone who has no financial or other connection to any person involved in the transaction.
In some cases, the buyer pays for the appraisal at the time of loan application. Other times, the appraisal fee is added to the settlement statement and paid at the closing table.
What you'll see on a residential appraisal report
Appraisals are very detailed reports based on an appraiser's on-site evaluation of a property as well as an evaluation of sales data.
Here are a few things they include:
- Details about the subject property, along with side-by-side comparisons of similar properties.
- An evaluation of the overall real estate market in the area.
- Statements about issues the appraiser feels are harmful to the property's value, such as poor access to the property.
- Notations about seriously flawed characteristics, such as a crumbling foundation.
- An estimate of the average sales time for the property.
- The type of area in which the home is located, for example, a development or stand-alone acreage.
- Residential Appraisal Methods
- There are two common appraisal methods used for residential properties:
1. Sales comparison approach
The appraiser estimates a subject property's market value by comparing it to similar properties that have sold in the area. The properties used are called comparables. No two properties are exactly alike, so the appraiser must compare similar properties to the subject property, making adjustments so that their features are in-line with the subject property. The result is a figure that shows the price at which each comparable property would have sold for if it had the same components as the subject property.
2. Cost approach
The cost approach is most useful for new properties, where the costs to build are known. The appraiser estimates how much it would cost to replace the structure if it were destroyed.
What is an AVM
An AVM or Automated valuation model is the name given to a service that can provide real estate property valuations using mathematical modelling combined with a database. Most AVMs calculate a property's value at a specific point in time by analyzing values of comparable properties. Some also take into account previous surveyor valuations, historical house price movements and user inputs (e.g. number of bedrooms, property improvements, etc.).
Appraisers, investment professionals and lending institutions use AVM technology in their analysis of residential property. An AVM is a residential valuation report that can be obtained in a matter of seconds. It is a technology-driven report. The product of an automated valuation technology comes from analysis of public record data and computer decision logic combined to provide a calculated estimate of a probable selling price of a residential property. An AVM generally uses a combination of two types of evaluation, a hedonic model and a repeat sales index. The results of each are weighted, analyzed and then reported as a final estimate of value based on a requested date.
An AVM typically includes:
An indicative market value for many residential properties nationwide.
The tax assessor's indication of value, if available.
Information on a subject property and recent sales history.
Comparable sales analysis of like properties.