A broker price opinion, or BPO, is a written estimate from a real estate agent or broker of what a property would sell for. Note buyers order one to check the value of the property behind a note. It is generally cheaper than a full appraisal and comes back sooner.
What the report contains
The agent looks at the subject property and at similar properties nearby, then gives an opinion of price. Expect to find:
- Photos of the property and the street.
- Recent sales of comparable properties, known as comps.
- Comparable properties currently listed for sale.
- Comments on condition, visible repairs and the neighborhood.
- An estimated price for the property as it stands, and in some reports a second figure for a quick sale.
Why the value matters when you are buying payments
A note is a stream of payments, and the property is what stands behind them. If the borrower stops paying, the property is where your money comes back from, so you need a current, independent figure for its worth before you set a price.
That figure is the bottom line of two ratios. Loan to value, or LTV, is the balance owed on the note divided by the property’s value. Investment to value, or ITV, is the price you pay for the note divided by the same value, and it measures your own exposure. An example with round figures: a $90,000 balance on a property worth $150,000 is an LTV of 60%. Pay $81,000 for that note and your ITV is 54%.
Change the $150,000 and both ratios move with it. That is why a value quoted by the seller, or the price the property sold for years ago, cannot carry a bid.
Exterior or interior
A BPO is either exterior, done from the street, or interior, with the agent going inside. A note buyer is almost always limited to the exterior kind. The borrower owns the property, you have no right to walk in, and you may not want the borrower contacted while a sale is being discussed.
The limit of an exterior report follows from that. An agent standing at the curb cannot see a failed roof deck, a gutted kitchen or a flooded basement. Read an exterior BPO as an estimate that assumes average condition inside, and leave room in your price for that assumption being wrong.
BPO compared with an appraisal
| Broker price opinion | Appraisal | |
|---|---|---|
| Who prepares it | A real estate agent or broker | A licensed or certified appraiser |
| Depth | Shorter, built on comps and a visual check | Fuller method and documentation |
| Cost and speed | Generally lower and quicker | Generally higher and slower |
| Where it is used | Pricing a note, monitoring a loan, deciding on a workout | Making a new loan, court and estate matters |
States set their own rules on who may prepare a BPO and what it may be used for. If you need a value for a legal or lending purpose, ask an attorney whether a BPO is acceptable.
Where a BPO can mislead you
- Thin comps. Rural land, unusual homes and small towns may have few recent sales. The opinion is then closer to a guess, and a careful agent will say so in the report.
- Old sales in a moving market. Check the dates on the comps as well as the prices.
- Wrong property type. Comparing a manufactured home to site-built houses, or raw land to improved lots, produces a number that looks more exact than it is.
- Who ordered it. A BPO supplied by the seller is a starting point. Order your own, or have one ordered by a party with no stake in the price.
Reading it before you bid
Go through the whole report, photos included. Check that the comps are near the property and similar to it, and ask the agent about anything that does not fit. If the BPO and your own research are far apart, get a second opinion before you bid.
Once you trust the value, work out your ITV and judge whether the gap between your price and the property’s value is wide enough for the risk. Value is one of the inputs when you price a note as a buyer, next to the payment history and the return you want on your money. Read it alongside lien position too. Whether you hold a first lien or a second decides how much of that value is yours, because a senior lien takes its share first.
The BPO is one entry on the due diligence checklist for note buyers, next to title, payment history and the other checks in the investor guide. When a note reaches you through our buyer list, ask whether a property value comes with it, who ordered it and on what date.
Related questions
Does the borrower know when a BPO is ordered?
An exterior BPO does not require it. The agent views and photographs the property from the street and has no need to speak to the occupant. An interior BPO needs access, and so the borrower's cooperation, which a note buyer has no right to demand.
Who pays for the BPO on a note purchase?
It depends on the deal. A buyer who orders one as part of their own checks pays for it, and a seller or broker may supply one with the note. If it came from the seller, treat it as a starting point and consider ordering your own.
How old can a BPO be before I should replace it?
There is no fixed rule. What matters is whether the comparable sales still reflect the market and whether anything has happened to the property since. If prices in the area are moving or the report predates a storm, fire or vacancy, order a fresh one.