For those who don't work short sales or foreclosures, or just not familiar with the term, BPO is an acronym for Broker Price Opinion. A BPO is nothing more than a CMA (Comparative Market Analysis) which real estate agents do on almost a daily basis except that a BPO typically includes at least a couple of photos.
There is no mystery to BPO's, a BPO does not have to be performed by a broker, any real estate licensee will do - regardless of experience or expertise. BPO's don't pay very well either; an average fee is about $50 which isn't much considering the amount of work that must be done. $50 is just an average, sometimes the fees run a bit higher and sometimes a bit lower. Basically there are 2 kinds of BPO's: Drive-By and Interior.
It is not uncommon for an agent to spend 3 or 4 hours on an interior BPO - add driving time, finding the right comps, uploading photos and completing the report form
An old adage comes to mind: "You get what you pay for".
When a borrower is behind in payments, a first step for most lenders is to order a BPO. Lenders rely on the BPO to report the fair market value of the mortgaged property. In theory a BPO is expected reflect the property value in it's as-is condition as well as in the current market.
Typical short sale offers are under fair market value. Personally, I've never seen a short sale offer at FMV but perhaps somebody somewhere has seen this anomaly. Most often you will find short payoffs are under FMV.
An example from an actual file:
Single family house in Port Richey, Florida - in 2005 or 2006, comparables homes sold for $125,000 to $140,000 depending on the upgrades, condition, etc. That was then. This year, 2007, that same neighborhood suffered about a 5 to 6% decrease in home values. The subject home, the property in foreclosure, however is in very poor condition. The tenants stripped the house of kitchen cabinets, bathroom vanities & toilets, light fixtures, ceiling fans, the air condenser; they even took the crown molding! Two separate contractors estimated repair costs in the $40,000 - $45,000 range (that didn't include the pool). BPO value came in at $145,000 - this was supposed to be as-is condition! Little wonder the $80,000 short sale offer was rejected. The lender, EMC, countered at $120,000 and refused to order another BPO (I offered to pay for it). This property will wind up as an REO. This short sale died as a result of a bad BPO.
Bad BPO's are the nemesis of Short Sale negotiators. BPO agents can take a win-win situation and turn it in to a no-win situation just by carelessness of not doing a thorough job.
To be fair, credit must be given to those agents that actually take the time to do a thorough BPO. Until there is some sort of standardization to which agents performing BPO's must adhere, all of us work with foreclosures and short sales, as well as homeowners & homebuyers, will be at the mercy of sloppy BPO's.