What to expect with a broker price opinion (BPO)
To remove your PMI based on your current home value, both Fannie Mae and Freddie Mac require a new home valuation, usually this is a broker price opinion (BPO). A BPO is not an appraisal. The process is pretty standardized, so here’s what you can expect.
What is a BPO?
A broker price opinion (BPO) is an estimate of a home’s valuation from a real estate professional, usually a real estate agent or broker. BPOs are most often used as part of a listing agreement with a real estate agent to help determine the listing price for a home. They can also be used for foreclosures and short sales of homes. BPOs are also used to determine the current value of your home when removing PMI.
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Two types of BPOs
Internal BPO: The agent performing the BPO needs access to your home. They verify the details of your home including the rooms, bedrooms, bathrooms, size and condition of the home. They will also take pictures of the rooms.
External BPO: The agent doesn’t gain access to your home, but assesses the value and condition from the road.
Fannie Mae and Freddie Mac require internal BPOs for the PMI removal process. This means the agent will need access to your home to perform the BPO.
Who performs the BPO?
For the PMI removal process, your mortgage servicer will work with the lender of your mortgage to order a BPO from an approved vendor. The vendors then hire a local real estate agent to come to your home and carry out your BPO. Sometimes the BPO company will reach out to introduce you to the real estate agent conducting the BPO, other times, the real estate agent will reach out to you directly.
What to expect during the BPO process?
First, you’ll have to coordinate a time for the agent to carry out the BPO. You’ll have to be at your home to give them access to the inside.
Agents are not paid very much per BPO, so the process is usually very quick. The agent’s main goal is to verify the details of the house (number of rooms and baths and the condition). They are required to take a photo of every room for the BPO, so make sure you tidy and clean the house before they arrive. Usually the process takes less than 15 minutes.
In some cases the agent will ask for a list of significant improvements for the home, in other cases, your mortgage servicer will ask for those separately. Otherwise, the agent likely won’t have any questions for you.
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How much does a BPO cost?
Because BPOs are much simpler than an appraisal, they are also much cheaper. Fannie and Freddie set standard prices for BPOs for PMI removal. At the time of this writing a BPO ordered from Fannie is $190, while a BPO ordered from Freddie is $150. On the other hand, the cost of an appraisal can range from $450 to $800 or more.
What’s in a BPO report?
Neighborhood analysis. The BPO report summarizes the characteristics of the neighborhood. This includes whether the neighborhood is urban, suburban or rural and the composition of housing types. This section also summarizes the real estate market in the neighborhood including whether home prices are increasing or decreasing and the number of sales per month.
Condition of the home. This section summarizes the condition of the house including the roof, electric, plumbing and kitchen. It also includes any recommended corrections based on any issues with the house.
Comparables analysis. This is the real meat of the BPO where the value of the house is determined. The broker selects three recent sales and three recent listings that should be located within a mile of the home. The address and listing or sales price of each property is listed in a table in the report. The comparables section compares the characteristics of each property versus your home’s. For some BPO providers, the report adjusts the listing or sales price for each comparable based on the characteristics of that property versus your home. Other providers simply list the characteristics. The characteristics include lot size, home square footage, beds and baths, built date, garage and property condition.
Based on this information, the broker selects a final value for your home. There is no set formula for the broker to determine your home’s value from the comparables, so they do have a level of discretion on determining the final valuation.
Photos of the home Lastly, the BPO includes a list of photos of the interior and exterior of your home. This will probably not be very useful for you, but is evidence that the agent fulfilled the BPO duties.
Things to keep in mind.
Some states don’t allow BPOs. Certain states do not allow BPOs and require appraisals for PMI removal. Fannie and Freddie defer to the mortgage servicers to interpret state laws around appraisals and BPOs. Since state laws aren’t always clear and are open to interpretation, every mortgage service may have a different set of states, which they’ve determined require appraisals in lieu of BPOs.
Never order your own appraisal or BPO. Finally, a reminder to never order your own appraisal or BPO for the PMI removal process. The mortgage services almost always have to order the valuation on your behalf. Both Fannie and Freddie require the mortgage servicers to order the BPOs directly through their portals. Fannie and Freddie then select a BPO vendor who will connect directly with you. The process does not allow a mortgage servicer to accept a BPO or appraisal you provide them, so never order your own appraisal or BPO.
