Indiana Broker Price Opinions
Broker Price Opinions are a service we provide at White Stag Realty. Depending on the complexity of the property we are giving our opinion on, the fee charged to our clients in need of a BPO ranges from $100-250 per report.
In order to understand what a Broker Price Opinion is and when it could be a wise investment for someone to make, let’s first discuss what it ISN’T and when it WOULDN’T be a good decision to hire for.
A Broker Price Opinion is NOT an appraisal. An appraisal is performed by a licensed appraiser and is usually going to be a requirement for a purchase of real estate with a conforming loan product issuing a portion of the funds for the purchase. An appraiser, although paid by the buyer of a property, is there to protect the lender from over-lending for a property. It’s a check and balance, in a way, for a buyer who may have submitted more than the appraiser believes the property is worth. Additionally, appraisals have a few methodologies at their disposal. Appraisers generally, for most traditional home sales, would use the sales comparison approach, where they’re utilizing recently sold real estate to justify the value of the property they’re tasked with appraising. However, they may also in some cases use a cost or income approach – either determining the cost of replicating the property OR determining a value based off estimated income the property can produce.
A Broker Price Opinion can NOT be used to appraise a property being financed by a conforming mortgage loan.An appraisal will be required unless that requirement is waived by the lender issuing the loan, and the criteria for waiver may vary between lenders and loan products.
A Broker Price Opinion is a real estate agent’s opinion of a likely list price for a piece of real estate. Please note the first difference – an appraiser is seeking an opinion of what a property is “worth”, whereas an agent determining their Broker Price Opinion is trying to assess a likely list price. Ideally, these numbers would not be far off from each other. That is to say, a buyer would generally value a property at the same dollar amount that an appraiser would suggest it is worth. The issue is that in fluctuating market conditions, these numbers can have disparity as the market conditions flux from one extreme or near-extreme to the next.
Whether improved upon or not, every parcel of real estate will have a monetary value to a prospective buyer. And that number is what a real estate agent is trying to determine when issuing a Broker Price Opinion. While this number can be influenced by construction costs and income production potential, both of those factors can also vary in different economic conditions. The best and truest way to assess a Broker Price Opinion, in our firm’s opinion, is to use the sales comparison approach. As long as truly comparable properties can be found in the near vicinity, that will indicate a few important factors to help a real estate agent develop their opinion:
- Appraised value supported sale price – One important note here is that even if a property that sold did NOT appraise for the full sale price (could be a cash sale or possibly a purchaser that used a loan and was willing to pay over appraisal value at the time of closing to attain the property), it WILL be used on future appraisals as a supporting comp. So once a transaction has closed, there are very few reasons to consider it unusable in a sales comparison approach.
- Buyer activity – This is more common sense than science, but if buyers bought 5 properties in an area in the previous 6 months, and those prices ranged from $250,000-300,000, it does start to create an understanding that pricing a home below that range wouldn’t be responsible (unless the seller is doing it with the goal of inciting an extreme multiple offer situation), and pricing a home above that range likely wouldn’t attract a buyer. Even if a buyer likes the property, most savvy consumers will look at nearby recent sales to justify their offer so they do not have the perception of overpaying for the property they’re interested in. It’s very rare that rapid value fluctuations would occur, but if they happen, the sincere hope is that any real estate agent hired to give a BPO would be aware of this.
Now, we will explore some common questions regarding valuation of real estate.
How is “value” different from “worth”?
The answer is unnervingly simple. Worth is what you paid for it, and value is what someone else would pay for it. There will be other “definitions” that people say, but we feel strongly that what you paid for a good may not be what someone else would pay for the same good. Further, what someone would pay for that good today may be different from what they would pay for the same good in the same condition in the future. So a delineation needs to be made between the two terms.
A common example would be purchasing a new car. There’s a cliche that says if you buy a new car, it loses value as soon as you drive it off the lot. In this case, the assumption is that it’s no longer “new”, and consumers value “new” over even a product that is virtually new, like the car you just drove off the lot for the first time.
Well, continuing the car analogy, there were supply chain issues with various automobile manufacurers during the Covid 19 pandemic, and one resulting phenomenon was the “value” of used cars increased. This shows that value fluctuates. Scarcity and demand are typically factors that would increase value, and abundance coupled with low or no demand would typically decrease value.
How is “value” established – isn’t it just someone’s opinion?
Value is established by present perceptions. As consumers have less faith in the economy, they may come to value keeping their money more than they value spending it. As consumers value a product, and this is heightened if they perceive that other consumers value the product as much or more than they do, they are more willing to spend more money to get it. So even though yes, it is a person’s opinion as to what something would be “valued” at, those opinions are rooted in perceptions.
An example of this would be beef brisket. Prior to the advent of low and slow cooking methods, it was generally perceived that the brisket was one of the lower-end cuts of a cow from a consumption standpoint. It was tough, lacked as much nutrition as other cuts, and not many consumers wanted to purchase it. As consumers learned of different preparation methods and they were able to not only enjoy the product more but also to sell it to consumers further down the literal food chain, the price of beef brisket skyrocketed. Nothing was different about the genetic makeup of cows. Just the perception of the specific cut of meat did a complete 180, and the net result was increased value.
White Stag Realty offers Broker Price Opinions to consumers in need of such a report. Again, depending on the complexity of the property we would be issuing the BPO on, our fee ranges from $100-250 per report. The reports will include the following information:
- Recent sale data – This would include sale price, time on market, amenities and features of the property, and more.
- Recent market data – Inventory levels, property value fluctuations, and more.
- Any suggested improvements necessary to market and sell the property, if applicable, along with an estimated cost of repairs.
- A letter of explanation that discusses details specific to the BPO for the property (unfortunately, since no two pieces of real estate are the exact same, neither is our process that leads to our Broker Price Opinion).
If you are a consumer in need of Broker Price Opinions on properties, which generally are used when trying to gauge the possibility of selling a property, we are happy to help! Contact our team at 317-965-4849. We will ask some qualifying questions about the property in question, and usually within 24 hours, we can advise of what the fee per report would be. From there, the turnaround time can vary based upon how many reports are needed (many consumers needing BPO’s may need them for an entire portfolio of real estate properties), but we do try to be one of the fastest and most thorough in the industry. The reports usually will not include any photographs of the property, as that may incur a small trip fee for the agent that procures the photos and reports. If considering a Broker Price Opinion, don’t hesitate to reach out. We also usually advise consumers based on their situation they describe to us as to whether or not a BPO is their best option.