BPO, or broker price opinion, is a vehicle used by real estate agents to assess home values. Over the years it has become sort of a competitor to an official appraisal that mortgage lenders still rely on when underwriting loans. BPO can be a dependable gauge although it is less scientific than an appraisal. And it is much cheaper, costing around $50 each while a standard appraisal runs into the hundreds.
With foreclosures and short sales playing now a large role in the housing market BPOs have become widely used. Mortgage lenders like them in these situations because they can be delivered quickly and are cost-effective. Besides, when a home is put on the market for sale under normal circumstances, the price is determined by the real estate agent doing the listing. When eventually a sales contract is generated, the appraisal is then ordered by the lender to confirm that the value is actually there.
The controversy today is about BPOs allegedly undermining real home values, especially in hard-hit areas like Las Vegas, Phoenix, Miami and much of California. In the opinion of many appraisers and consumer organizations real estate agents often low-ball prices so that the property will sell promptly and when that happens they expect banks to give them more listings that will at the end turn into nice commissions. These understated transactions will then become comparables for appraisers, pushing overall price trends lower.
If this low-balling practice is true, it might actually help out in the big picture. The market is still saturated with inventory, everyone agrees on that, and the sooner it is moved the better everyone is off. Banks were earlier reluctant to bring prices down to where their foreclosed property would attract buyers, so obviously they are now changing their approach. When real estate prices and average annual incomes for a given area reach a workable balance, the marketplace becomes genuine and sustainable.
If this is the way to get there in a reasonable time frame, then be it.