How often do you work up a broker price opinion (BPO) for your seller when listing a property?
- Every listing (80%, 8 Votes)
- Most listings (10%, 1 Votes)
- Very few listings (10%, 1 Votes)
- Roughly half of listings (0%, 0 Votes)
- Never (0%, 0 Votes)
Total Voters: 10
Question: Does one need to be a broker to prepare and present a broker price opinion (BPO)? Or may a sales agent or licensed appraiser also provide BPOs?
Answer: Any real estate broker or sales agent licensed by the Department of Real Estate (DRE) and any appraiser licensed by the Bureau of Real Estate Appraisers (BREA) may conduct a BPO. However, licensed appraisers are required to follow additional reporting rules.
BPO: a different backdrop from an appraisal
A BPO is a broker’s analysis and estimate of a property’s market price, determined as its fair market value (FMV) on a specific date and documented in a written BPO report.
The BPO report includes data collected and analyzed by the broker as they need to substantiate their opinion of the property’s market price — its FMV.
Developing an opinion of value — regardless of the method or format — is considered an appraisal under the Uniform Standards of Professional Appraisal Practice (USPAP). Thus, any individual licensed as an appraiser needs to follow USPAP rules when developing any kind of appraisal report, including a BPO.
Some clients may request BPOs from licensed appraisers, seeking to save money by sidestepping the need for a full appraisal report. But, for a licensed appraiser, this is simply not possible. In cases where a client seeks to avoid USPAP compliance, it’s better for the appraiser to not accept the assignment, according to the BREA.
Real estate brokers and sales agents have more wiggle room when it comes to the format and delivery of a BPO.
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Calculating a listing price presentation
The FMV of a parcel of real estate, given as a dollar amount, is typically determined based on the sale of comparable properties and application of a capitalization rate to a rental property’s net operating income (NOI). [See RPI Forms 318; 318-1]
Factors used in the evaluation process to determine a property’s market price include:
- demand – the number of buyers for the property;
- utility – the property’s possible uses;
- scarcity – the availability of similar properties; and
- transferability – the seller’s ability to transfer good title to a buyer clear of all encumbrances itemized in a title insurance policy.
Collectively, these are known as the elements of market price, memorized using the acronym DUST.
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While certainly important to the owner, factors unrelated and not used to set a property’s market price include the seller’s:
- acquisition cost – to set seller profit on a resale;
- property taxes – not the buyer’s cost of ownership;
- listing price – commonly above FMV by design;
- mortgage financing – at a below market rate; and
- equity in the property – extracted by resale or refinancing.
Therefore, it’s possible — even likely, during periods of falling home prices — that a BPO discussion for listing a property or reviewing an offer will meet with seller resistance. But substantiating your BPO with a complete report, including data on recent sales, will help steer your seller’s understanding toward agreement with your BPO and price their property accordingly.
Sellers who refuse to drop their sticky price expectations from yesterday’s pricing and list their property at a price that will match buyers’ expectations will end up wasting the sellers agent’s time. Better to fire this type of recalcitrant seller upfront and save yourself the effort.Do you have a question for the firsttuesday editorial department? Email us at editorial@firsttuesday.us and your topic may be presented in the next Letter to the Editor!
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