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If you are considering doing BPOs as a source of income, you will want to check out these 5 tips on how to do a Broker’s Price Opinion for real estate.
I have done over 5,000 BPOs during my real estate career. I want to share with you some tricks of the trade for not only completing an accurate BPO but also how to do it cost-effectively.
Why do BPOs or have a working knowledge of how to do a BPO? Because you never know where this skill can take you. As we go into a shifting market, understanding how to do a BPO is not only applicable for foreclosures or short sales, but it can also save your traditional business.
One BPO Made Me a $1 Million
Yes, it is true! I was just starting my foreclosure business as an agent. I couldn’t have been licensed for more than 3 years at the time. However, I worked on Broker Price Opinions consistently to hone that skill.
One day an asset manager from one of the largest banks reached out to me. I had submitted a BPO to a 3rd party company as I regularly did. She was so impressed with the BPO that she invited me to be an REO agent!
That relationship lasted over 17 years! When I moved from Indiana to Florida, they again took me on as an REO agent. I have incredible homes for them as they did jumbo and portfolio loans. A few of those properties were even featured in movies. And one I even sold to a British Lord!
What is a BPO in Real Estate?
A BPO, or Broker’s Price Opinion, is a report that real estate agents use to estimate the value of a property. Lenders often use BPOs to assess the value of a property before foreclosing on it and to modify mortgages and short sales.
However, I also use BPOs on traditional real estate listings, especially when I know I will be challenged by the seller and their asking price. In this aspect, having a BPO in your tool chest will not only help you win the listing but get the price right-the the first time! As you know, right-pricing properties lead to happy sellers, which equates to money in your pocket!
While most BPOs are not as comprehensive or accurate as an appraisal, they can still provide a reasonable estimate of a property’s value.
What are the 5 key tips for doing a BPO?
Throughout my REO career, the asset managers and the appraisal department within the banks graded you on your skill set. That grade determined how many properties were assigned to you in the future. Additionally, that yearly grade was crucial for KEEPING that account. If you fell below the requirements, BANG, you are FIRED!
Can you imagine losing an account that paid you hundreds of thousands of dollars annually? It can happen if you are not paying attention.
I want to share with you how I successfully kept my REO clients and used BPOs to win traditional listings.
How to Choose the Comparables for a BPO
Selecting the suitable comparables to use for pricing your subject property is crucial. Although every property is unique, matching as best as you can make your BPO stronger.
Rules for Comparables
Every institution has rules regarding how you select your comparables. However, there are basic guidelines that you should use as a “rule of thumb.”
- The comparable must be +/- 5 years constructed of the subject property
- The square footage can deviate +/- 500 sq ft: The smaller the home, the less variance you want. For instance, if I am trying to price a home that is 1200 sq ft, I would NOT be using a home that is 1800 sq ft.
- Like Kind Construction: The comparable must be equivalent to the construction standards. For example, You would not choose a custom-built home as a comparable if the subject home was a typical track home. It must be like for like.
- Location must be within a mile or less: Try to get the comparable as close to your subject property as possible. If there is one in proximity and meets the above criteria, you should use it.
Understanding Your Local Market Conditions
You are the storyteller in your BPO. Imagine that you have to set the stage for someone before the play begins. This is what your local market conditions do. Tell the client what is going on in the neighborhood or immediate area. They are not interested in the entire state or section of the country. Be specific about the location around the subject property.
Here are a few questions that you should be thinking about to assist you in formulating local market conditions.
Neighborhood Demographics:
Neighborhood demographics for a bpo describes what is happening in this neighborhood. How properties are used and what surrounds them can affect value. Therefore, when referring to neighborhood demographics, here are a few questions you should consider.
- Are there more rental properties vs. owner occupants?
- Does this street where the subject property is located have pride of ownership or is there delayed maintenance?
- Are there any commercial uses nearby? If so, does that negatively impact the subject’s value?
Real Estate Listings and Sales
Part of describing market conditions entails looking not only at past sales and days on the market but also at who your competition is. Additionally, how many past and current listings were bank-owned or short sales?
In addition, your client wants to know if the market is improving, declining, or holding steady. For example, if you know that days on the market are increasing every month and homes have been selling for less, you are in a declining market. Therefore, your pricing recommendation should reflect that.
Photos for a BPO
When taking pictures for a real estate BPO, it’s essential to keep a few things in mind. First, make sure that the photos are clear and in focus. Blurry or dark pictures will not be helpful to the BPO analyst.
Your photos help you validate the value you have recommended. Remember, you are the eyes of your client.
Here are a few tips to help you take great pictures for a Real Estate BPO:
1. Make sure the camera is level with the home. This will help to avoid distorted angles and give the home a more professional look.
2. Try to get a spot where you can take pictures from multiple angles. This will give you more options when you’re putting together the BPO.
3. Take advantage of natural lighting. If possible, try to take pictures during the daytime when there’s plenty of sunlight. If the property has electricity, turn on the lights.
4. Remember to focus on the details. In addition to taking pictures of the home’s interior and exterior, take photos that capture close-ups of any delayed maintenance issues.
5. Make sure no people are included in the pictures.
By following these tips, you can be sure that your Real Estate BPO photos will turn out great!
Finally, label each picture with the property’s address and the date it was taken. This will help the analyst to keep track of the photos and match them up with the correct property. Following these simple tips ensures that your real estate BPO photos are of the best quality possible.
Understanding Adjustments to Comparables
When you create a BPO, you are trying to calculate a value for the subject property. You have chosen the comparables, taken the photos, and researched the market conditions. Now, it is time to start entering the data and making adjustments.
Adjusting the comparables is the heart of the BPO. However, assigning values to properties can be somewhat subjective. This is an art; the sooner you master this, the better your BPOs will be.
Therefore, there are some basics that you must understand about your real estate market to do this effectively. For instance, what is the average price per square foot for homes in your area? How does location impact price?
Secondly, how much value is placed on improvements such as a new kitchen or swimming pool? By understanding the consumer desirability of your local market, you will be able to adjust the prices accurately.
Finally, how do the market conditions impact future value? If the days on the market are over your traditional sales time, adjustments can also be taken for extended DOM.
Remember, the comparable values change to conform to the subject property.
Calculating Repairs on the BPO
Most interior bpos will have a section dedicated for suggested repairs to bring the property up to marketable condition or repaired for an owner occupant. If you’re ever asked to calculate repairs on a bpo, it’s helpful to have a list of average repair prices handy. This way, you can quickly and easily estimate the cost of repairs for the property.
Of course, every property is different, so your estimates may vary. But having a general idea of repair costs will help you complete the repair section of the bpo with confidence. For instance, you should know approximately how much it would cost to paint an interior room or replace damaged flooring. Once you understand basic repair costs, calculating repairs on a bpo will be a breeze!
I recommend building a list of repairs from local contractors. For example, what is the price per square foot to paint an interior and exterior of a home? Making a cheat sheet with repair estimates for paint, floor, roofing, and minor carpentry will give you consistent values.
Providing the Final Value on a BPO
Calculating the final value of the subject property on a BPO considers the elements of repairs, market conditions, the sales price of the comparable used, and your adjustments to them. The final value is typically determined in an as-is value vs. a repaired value.
Also, who do you think is going to buy this property? For instance, if owner-occupants surround this home, you will most likely market the home repaired to capture an owner-occupant. However, suppose the property is located on a busy street with other external factors such as surrounding commercial uses. In that case, the parcel may be suited for an as-is sale and sold to an investor.
It may be best to know their strategy if you are doing a BPO for an REO client. I have had bank clients initiate directives to clean up a neighborhood and want to invest funds even though they will never get a return on their investment.
Pricing a property for a bpo can be tricky. On the one hand, you want to be as accurate as possible to ensure that the bpo is accurate. On the other hand, you don’t want to low-ball the price and end up leaving money on the table.
The key is to strike a balance between these two extremes. Market conditions, location, necessary repairs, and past sales are all important factors when pricing a property.
By considering all of these factors, you can develop a pricing strategy that maximizes your chances of coming close to real estate market dictates while ensuring that you get the best possible price for your client.