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Well, the results of Broker Price Opinions (BPOs) vs. Appraisals are in. Continuing from part one of Fact or Fiction, I felt as though the best way to decide whether or not what I was talking about had any merit, was to do a test on a property that I have in my own portfolio.

The property that I chose was a 3/2.5/2 with a pool located in Arizona. The reason I chose this property for my test is that it was bought below market value, and there had been a complete remodel done on this home in the last year. I also had two full US Property and Appraisal’s (USP&A) done on this home. The first appraisal was done in November of 2000, at which time it appraised at $145,000. The second one was done in June of 2001, at which time it appraised at $153,000.
So, armed with this information, I set out to discover the real truth about BPO’s and Appraisals. I contacted three different companies in my local area that did BPO’s. To my surprise I discovered that the cost of having a BPO done ranged anywhere from $75.00 to $200.00 with pictures. Keep in mind that I paid $300.00 for a full appraisal from a national company.

Broker # 1 charged $75.00. It took him 4 business days to complete the BPO. His value of the property was stated as $122,000. When asked about how he established this value, he said he based it on comps in the area along with the tax rolls. He also let me know that this was not his main line of his business. He main line of business was listing homes. Despite that, he had no problem taking my money! When I brought to his attention that the lowest priced sale in the area in the last 6 months was a $129,000 and a 2/2/2 (smaller home), he recommended that I seek the assistance of an appraiser to establish property value.

Broker # 2 charged $120.00. It took him 9 business days and I received color photos of the outside of the property. The value that he placed on the property was $129,500. When asked how he established the value, he informed me that he had sold several homes in the area in the last two years. He also stated that his last sale in the area was over nine months ago.

Broker # 3 charged the highest of all at $200.00. It took him 6 business days, and I received what looked like a novel about the property. In his report he told me everything about the property size; shape; color; location; schools; shopping centers; freeway access; comps; taxes; neighborhood amenities; etc. His assessed value of the property was $136,000. This BPO was, by far, the most impressive. Only one question still remained“ How is it that he can still be 12% off on the value of the home? As he attempted to explain how he arrived at the $136,000 value, he disclosed some very important facts to keep in mind when comparing a BPO to an Appraisal. He stated that a BPO is designed to do a quick comparison of the subject property based on the current sales in the area. When I asked him if traditional lenders would use a BPO to establish value on a piece of real estate, he stated “highly unlikely”. They are looking for a much more comprehensive approach to establishing the value of a piece of real estate.

It is also important to understand that institutional note buyers typically have a margin of approximately 10% when looking at the value of a BPO. None of the BPO’s that I received would have fallen into their margin, which in turn would have given them the opportunity to change the pricing on this deal.

So, the question remains: Which is the best way to establish the value of a property, a BPO or an Appraisal?

I personally have found that the best way to establish value on a piece of real estate is through a full appraisal with interior photos from a national company. By doing it this way I have found that when I sell a note it eliminates any question of value that the buyer may have. Thus a win / win situation is created for both the buyer and the seller.
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About The Author
Troy Fullwood is the President of Pinnacle Investments located in Chandler, AZ. Created in 1997, Pinnacle Investments is a nationwide principal buyer of 1st lien performing and non-performing real estate notes, and an industry leader in continuing to offer the simultaneous purchase of newly created notes. Troy is a respected teacher and speaker in the industry, he has written over 50 articles on real estate investing and spoken at several industry conventions.

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