The Two Major Types of BPO or Broker Price Opinions
What Are Drive By and Internal BPO's?
Many real estate agents and brokers are supplementing their commission income by doing BPOs, or Broker Price Opinions. Though the income from an individual BPO may only be between $50 and $150, these brokers do well by streamlining their procedures and forms. Many companies allow the completion of BPO forms online.
In short, a BPO is used in situations that do not yet warrant the time and expense of a full appraisal. Circumstances that may call for a BPO include foreclosure, refinancing, or mortgage forbearance.
Mortgage lenders often hire asset management companies to hire out these BPOs. These companies set up strict forms and procedures and there are lists of real estate professionals they approve for doing BPOs. Real estate agents compete for these BPOs for two reasons. First, many do them for the income, especially newer agents or others when business is slow. Second, established listing agents will do BPOs with the goal of getting the listing when the home is foreclosed.
There are two major categories of BPOs, the Drive-By BPO and the Internal BPO. The name "Drive-By" implies the extent of this BPO, but the task and form requirements can vary for this BPO type. Of course, in general, the drive-by BPO will not require the broker to go into the home.
The Internal BPO can also vary in tasks and form requirements. It is definitely more involved, and there are usually more photos required. This BPO can require contact with a homeowner in foreclosure, or with a tenant who isn't aware of the situation. Care should be taken to know the situation and hopefully have an introduction before arrival.
The Drive-by BPO
Both of these BPOs have a goal of determining a rough preliminary value of a property that is approaching or in default. The lender is experiencing problems in getting the mortgage payments, and they want an initial estimate of value before any other action is taken.
Of course, when you're just driving by and looking only at the exterior of the property from the street, you're definitely only giving a very rough estimate of value. It could be totally trashed out on the inside and you would not know.
So why do this BPO in the first place? Generally, at this point, it is assumed that the borrower is still in the home and the lender doesn't want a contentious scene when someone they don't know knocks on the door and says the lender sent them to see what the home is worth. In some cases, the borrower may have already moved out, and perhaps the real estate agent doing the BPO can verify this by:
- Getting close enough to see that there is no furniture in the home
- Seeing that the gas meter is locked off for non-payment
- Seeing the electric meter pulled or locked off for non-payment
In any event, this drive-by BPO is intended to be a discovery mission and a very tentative valuation.
The Internal BPO
When the lender knows the borrower is no longer in the home or has their permission to visit for the BPO, then a more thorough Internal BPO can be done. This is more like the valuation a real estate agent does for a seller to determine market value. The forms are more detailed than those for the drive-by BPO, and often the agent is paid more for this type of BPO.
This is generally one of the first steps toward filing a foreclosure, and this BPO is relied upon by the lender in starting the process with an idea of what they can get for the property in the current real estate market.
Agents who do BPOs with the goal of getting the listing after foreclosure should be extra careful with their valuations. If they later get the listing and recommend a listing price very different from their BPO, they better be able to back up reasons for that difference. Whether for income or listings, BPOs are a special niche for enterprising real estate professionals.