When the alphabet soup of real estate valuation methods start heading your way, things might get a little confusing. AVM, CMA, BPO…oh my! While there are several processes to measure your home’s value, the two most common are a BPO (broker price opinion) and an appraisal. The goal of a BPO and a home appraisal is the same: assisting home sellers, buyers, and their real estate agents to determine the selling price of a home. However, there are some key differences.
What Exactly is a BPO?
A broker price opinion (BPO) is exactly what it sounds like: a home valuation tool that involves the opinion of a licensed real estate professional acting on behalf of a buyer, seller, or financial institution. Similar to a comparative market analysis (CMA), a broker price opinion measures the home’s value based on what comparable properties (frequently referred to as ‘comps’) have recently sold for. Unlike a CMA, which focuses mostly on ascertaining the listing price for the property solely using the data contained in comps, a BPO uses additional parameters for valuation.
Generally, real estate professionals analyze a minimum of three properties that have sold within the previous 90-days, ideally properties in close proximity. Since the report generated by this type of assessment becomes part of the listing agreement, it includes details like property condition, square footage, age of the property, zoning laws, and neighborhood. These evaluations are conducted in one of two ways:
● External—or ‘Drive-By’—BPO in which there is no access to the interior of the house, and the report must be completed by using comps, curb appeal, neighborhood information, and any other documentation available as public record.
● An Interior BPO provides more detailed insight into the perceived value of the property. Photos are taken of interior rooms and exterior facades, with annotations made for repairs that would be needed to bring the home to fair market value.
Pros
- Faster and less expensive than a home appraisal
- Can be used for a request to cancel private mortgage insurance (PMI)
- Based on a professional’s expert knowledge of current market trends
Cons
- High-level assessment, providing fewer details and less accuracy
- Could be constricted by federal and state laws
- Does not meet the requirements of federally-regulated transactions
When a BPO is Best:
- Short sales, foreclosures, distressed properties, and real estate owned (REO)
- Portfolio and asset valuation
- Home equity line of credit (HELOC) and other home equity loans, less than $250k
- To determine a property’s listing price
How BPOs Compare to Home Appraisals
The most consequential difference between a BPO and a home appraisal are the laws and ethics that each can ignore or must abide by. An appraiser operates under the Universal Standards of Professional Appraisal Practice (USPAP) and law, acting as a non-biased third party with no interest in the property being inspected. A real estate professional, on the other hand, does not need to conform to these laws, and frequently has an invested or prospective monetary interest in the property when it is being examined.
There are also some significant contrasts in the details provided by a home appraisal report, leading to a much more accurate assessment of a home’s value using historical data, versus the predictive data that BPOs use. Beginning with a thorough examination and recording of the conditions and measurements found in the exterior and interior of the property, a home appraisal report also includes public records, photos, and valuation diagrams. A home appraisal evaluates the property’s fair market value and how that value was determined, a summary of local and national market trends, issues found, and other considerations, like encumbrances.
Pros
- Can be used for purchase mortgages, refinancing, and federally-regulated programs
- Detailed, accurate, and objective reporting, rendered by a licensed and certified appraiser
- Identifies structural and land issues, as well as any valuation discrepancies
Cons
- Time-consuming and expensive, involving an extensive amount of paperwork
- Identified appraisal gaps could delay or prevent closing if there are no contingencies
- Unique properties without comps and those in transitioning neighborhoods may have their mortgage declined or be required to supply an additional down payment
When a Home Appraisal is Best:
- New homes purchases; including federal programs like FHA, USDA, and VA
- HELOC and other home equity loans over $250k
- Commercial real estate
Can I do it on my own?
Many homeowners elect to decipher their own home value by using a home value estimator. Often referred to as an Automated Valuation Model (AVM), these software-based valuation tools use Machine Learning (ML) algorithms to evaluate statistical and mathematical data from real estate transactions, predicting a home’s value. While home value estimators are more cost-effective, efficient, and aren’t subject to human misconduct or error, they can often be inaccurate due to stale data. They rely solely on historical data, often missing the mark on nuances that could lower or raise an assessment. Home value estimators are a great place to begin to get a general idea of your home’s value as compared to the rest of the market, but aren’t an accurate lens into the microcosm of home appraisals.
A home appraisal, conducted by a licensed and certified professional, is a much more reliable measurement of your home’s value, yielding better results for greater insight and more accurate valuation. If you’re interested in learning more about our commercial and residential appraisal solutions, or need an appraisal today, we’re your partner at every step of the appraisal process.
If you have an immediate need for a commercial or residential real estate appraisal, fill out the brief form below or order an appraisal online. We are the most trusted appraisal company in New England and New Jersey, performing more than 9,000 appraisals every year! Contact Appraisals Unlimited by calling us at 781-449-7600 or email us at office@appraisals-unlimited.com
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