Can A Real Estate Agent Do A BPO?

New real estate investors absolutely need to understand how to value properties. Without this skill, analyzing deals proves quite challenging. To assist with valuations, many investors look to an alternative to full appraisals – BPOs. As such, I’m often asked: Ryan, can a real estate agent do a BPO?

A BPO, or broker’s price opinion, offers an inexpensive alternative to appraisals. Real estate agents or brokers view a property, pull comps, and make an estimate of the property’s value. But, investors need to be careful, as many real estate agents outsource this process, creating quality issues.

I’ll use the rest of the article to explain BPOs, how real estate agents do them, and some potential concerns. Specifically, I’ll dive into the following topics:

  • What’s a BPO?
  • Concerns with Real Estate Agents and BPOs
  • Types of BPOs
  • BPO vs. Appraisal
  • Understanding Property Valuations as an Investor

What’s a BPO?

BPO stands for broker’s price opinion. Generally speaking, BPOs serve as more inexpensive, less accurate ways to value a property than a full appraisal. When investors or banks need a quick estimate of value, they frequently use BPOs, as they cost less and can be done more quickly than a formal appraisal. 

Who does BPOs?

In real estate sales, agents typically work for a brokerage firm, with a broker overseeing the agents’ work. In this system, brokers have additional experience and qualifications, so they are authorized to supervise real estate agents. So, can real estate agents complete a BPO, or can only brokers do these? 

Despite the fact that the acronym includes the word broker, real estate agents can also complete BPOs. The BPO process broadly includes three parts: 

  • Comps: Real estate agents will pull some market comps to the target property. 
  • Property viewing: Next, the agents will do a walk-through – or at least a drive-by – of a property. This gives them a better understanding of the property condition and its similarities and differences to the pulled comps.
  • Estimate of value: Lastly, agents will look at the comps and general property condition to estimate its current market value.

Investors need to understand: BPOs do not guarantee value. They are a best-guess estimate based on available comps and a quick viewing of the property. In that respect, full appraisals prove far more reliable than BPOs. But, appraisals also A) take longer, and B) cost more. Whereas it costs anywhere from $300 to $600 to appraise a single-family home, most agents will complete a BPO for $80 to $150. This makes BPOs extremely appealing to investors during the initial stages of a deal analysis.

Concerns with Real Estate Agents and BPOs

While real estate agents can do BPOs, investors need to thoroughly vet agents before hiring them to complete one. 

Following the Great Recession and associated foreclosure crisis, demand skyrocketed for BPOs. Investors with cash on hand purchased foreclosed properties as quickly as they could close on deals. And, in analyzing these deals, they’d hire local real estate agents to complete BPOs during the due diligence period. 

Eventually, the demand for BPOs outpaced the ability of agents to complete them. Instead, many agents began to outsource the process. They’d hire an overseas contractor to pull the comps, then they’d pay a high school kid without any real estate training or experience to view the property. After this, many of these agents would then estimate the value – without having reviewed the comps or personally seen the property. 

As a result, investors ended up paying for BPOs completed by unqualified individuals. We call these operations “brokerage mills,” places that churn out BPOs without any level of quality control. While not all agents worked like this, investors must do their homework before hiring someone. Before requesting a BPO, confirm that the agent him- or herself will personally complete the process. 

Types of BPOs

Investors should also understand the different types of BPOs. Similar to appraisals, you can request an as-is or after-rehab BPO. 

  • As-is BPO: These appraisals typically involve distressed properties – places in need of significant repairs. Agents look at comps for local properties in similar conditions, and they estimate the value based on these comps and the level of disrepair. For new investors analyzing a deal’s purchase price, these BPOs can provide insight into the local market.
  •  After-rehab BPO: Additionally, investors can request a BPO for future value estimates. That is, you can ask agents to provide an estimate based on your rehab plan and what the property will be worth after that rehab. However, you need to be extremely careful requesting these. To accurately estimate future value with a BPO, real estate agents will need to see a construction bid from your general contractor. Without this information, an agent cannot reliably estimate after-rehab value. As such, you should not hire an agent who says he or she can complete an after-rehab BPO without this detailed bid.

Regardless what type of BPO you need, I can’t emphasize this point enough: before hiring a real estate agent to complete a BPO, verify that he or she will do it personally. Otherwise, you’ll end up paying for an unreliable, low-quality estimate.

BPO vs. Appraisal

With these potential concerns with BPO reliability, some investors ask if they should forego them and just complete appraisals when required. There is certainly a time and place for appraisals. For instance, when you apply for a hard money loan, the lender will base its loan amount on the property’s after-rehab value (ARV). And, they will only accept a formal appraisal – not a BPO. 

However, when analyzing potential deals, it’s hard to justify the time and cost of an appraisal. If you need a BPO, a real estate agent generally only needs a day or two of notice (or less). Conversely, from appraisal request to completed report can take as long as two weeks – while costing significantly more money. Investors, especially when analyzing multiple potential deals, cannot afford this time and money for every property. 

Bottom line, investors need to balance cost and time against reliability and lender requirements. Appraisals absolutely provide more reliable valuations, and lenders typically require a formal appraisal. But, if you don’t need an appraisal, the lower costs and reduced time of a BPO may make more sense. 

Understanding Property Valuations as an Investor

To become a successful real estate investor, you need to understand how to complete your own property valuations. Yes, you can have real estate agents complete BPOs for potential deals. But when you’re analyzing dozens (or more) of potential deals every year, this becomes a major – and unnecessary – cost. 

However, to accurately estimate values, investors need access to comps data. Real estate agents can access this information on the Multiple Listing Service (MLS), but most investors can’t. Instead, you need to work with a third-party data aggregator that has all of the information included in the MLS. 

Our Investor’s Edge software can help. This tool has detailed sales information on over 160 million potential deals, providing investors the information they need to make informed property valuations. And, our team has a ton of experience helping new investors estimate values. We’d love to help you on your real estate journey, so drop us a note to get started working together! 

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