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BPO vs. Appraisals: Which Should You Use?

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If you’re looking for a different option for an appraisal, there are a good amount of alternative valuation products available to choose from. Many, like desktop appraisals or real estate AVMs, are quicker than the traditional appraisal because they aren’t as extensive, and some might not be considered an appraisal at all. Broker’s Price Opinions, or BPOs, are another example that falls into this category.

With a BPO, you receive the estimation value and suggested list price from a real estate agent. They’re usually the most helpful in determining what a property’s estimated value is before a sale. Since they’re just a quick estimate, BPO’s offer a high-level glimpse of a property and surrounding market. They don’t provide as much insight as an appraisal or different alternative valuation product would. Let’s dig into BPO vs. appraisals and what lenders need to know.

What’s the Difference Between a BPO and an Appraisal?

The key difference between a BPO and an appraisal is that an appraisal completes the service and their obligation under the Uniform Standards of Professional Appraisal Practice (USPAP) and law. A BPO is typically completed by a real estate broker or agent and is not required to conform to USPAP or state appraisal law. A BPO can be completed by a licensed or certified appraiser, but then becomes an appraisal under USPAP and state law. Due to the limited scope and legal ramifications, most appraisers will decline BPO assignments.

So, since a BPO is such a high-level report, how is it completed? Most often, the broker or agent will do an exterior inspection of the property and drive the subject neighborhood. Depending on the situation, they may have interior access as well. The broker or agent combines their inspection observations with data, usually MLS or public records, and reports their analysis by way of the BPO form. This is not unlike what an appraiser does, except that appraisers are subject to legally enforceable accountability.

Since BPO’s don’t require any contact with the property owners, they’re often used to determine the value of foreclosed homes. BPOs are often used to estimate market value and list price for foreclosed properties.

Sometimes a BPO will include an internal inspection, and therefore will include a more detailed report. In situations like these, the valuation will also consider the state of interior aspects like the ceilings, walls, countertops, sinks, floors, heating, and air conditioning.

Whether an internal inspection is completed, or there is just a drive-by, BPOs are typically completed very quickly, which may be an advantage if you’re looking to get information on the valuation of a property within a shorter time frame.

Now, let’s take a quick look at appraisals. When you request a full appraisal on a property, you receive a detailed report with information obtained from the appraiser’s interior and exterior inspection.

The appraiser also examines the subject site, adjoining sites, subject neighborhood, and general market area for any factors that might impact the subject’s appeal and marketability. Once all the information and data has been analyzed, the appraiser adjusts the comparable sales and listings based on the estimated reactions of a typical buyer for the subject property.

BPO’s look at many of the same factors as an appraisal, and the BPO may or may not include adjustments. Under law, the appraiser must be an unbiased third party with no interest whatsoever in the property. The appraiser is also required under law to maintain a detailed work file, and they must be able to support all the conclusions contained within the appraisal.

On the other hand, a realtor completing a BPO doesn’t have to follow these legal obligations. Therefore, they may also have a prospective financial interest in the property while conducting the appraisal.

How to Select the Right Option for Your Property

If you’re not sure what type of appraisal product to use, you should consider what you want to know about the property. A full appraisal is a comprehensive analysis and therefore requires more time and cost than a BPO. Outside of a mortgage transaction where the lender must order the appraisal, there are other situations where an appraisal is recommended and sometimes required. Some examples would include disputing real estate taxes, divorce, or probate.

A BPO offers a faster, less expensive option for certain situations. If you are considering selling your home and want a general idea of what the list price and likely sale price would be, an experienced local realtor and BPO might be your best option.

Appraisers and realtors often see things from different perspectives, and there are instances where both a BPO and appraisal might be the better choice. Consider the following scenario. The subject is in a retirement community where most homes have first-floor master bedrooms. You are planning to put the house on the market but have a second-floor master bedroom. A realtor will be able to recognize that the people who are looking to move to this community aren’t going to be keen on using stairs, and they will know how to develop the right marketing strategy for the home. The appraiser can then provide a more in-depth analysis of the impact on marketability.

If you’re still not sure, the worst thing you can do is waste time and money on appraisals and BPOs that might not provide the information that you actually need. Working with a lender appraisal expert can help. At Dwellworks, our lender appraisal team specializes in high-quality service, quick turn times, and expert advice. If you’re looking for more information on what alternative valuation product is right for you, get in touch with us today to learn more about the services we offer and how they align with your properties.

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