The Process and Methodology Behind Broker Price Opinion Valuations

Broker price opinions, known as BPOs, are estimates of real estate market values created by licensed brokers or agents. But how exactly how are broker price opinions formulated? What specific valuation methodology do brokers use to come up with property worth estimates?

Here is an in-depth look at the steps and analysis involved in formulating accurate broker price opinions:

Inspecting the Subject Property The first step a broker will take is thoroughly inspecting the subject home or building, either on-site or virtually. They note details on square footage, floorplan, amenities, age, condition and any renovations or deterioration. This establishes the property parameters.

Researching Comparable Area Sales Next brokers research recent sales of comparable properties sold near the subject in the last 6 months, gathering specifics like sale price, beds, baths, square footage, lot size, age and condition. The goal is finding true apples-to-apples comps.

Adjusting for Differences Since no home or building is identical, the broker makes adjustments up or down to the comparable sales prices to account for differences from the subject home. For example, adding value for additional bathrooms or deducting for a smaller lot. The goal is determining what the comps would have sold for if identical to the subject property.

Establishing a Base Value Based on the adjusted comparable values, the broker determines an estimated base value or price per square foot for the subject property. This base value reflects what fair market value would most likely be prior to any other influencing factors.

Factoring in Market Conditions The broker then considers current local market conditions – are prices rising, falling or flat? Are homes selling above or below asking price? This market trajectory helps refine the valuation above or below the base level established through direct comps.

Making Condition Adjustments The broker will further adjust the tentative value up or down based on the subject property’s condition compared to the comps and typical area homes. Superior remodels or new systems add value; deferred maintenance or functional obsolescence detract value.

Including External Influences External factors like noisy roads, obstructed views, proximity to amenities and schools also influence value. The broker incorporates appropriate additions or deductions based on these externalities.

Determining a Final Recommended Value Range Once all adjustments are complete, the broker can establish a final recommended range for listing, sale or assessed value. This valuation relies on the broker’s depth of local housing market knowledge more than formulas.

The broker may finalize a single-point estimate or a value range while noting any major assumptions, contingencies, or appraisal recommendations. Any needed repairs should be disclosed.

In summary, seasoned brokers rely on property inspection, sales comparison, adjustments, and overall market expertise to systematically derive accurate, substantiated broker price opinions. Their local perspective provides value that automated tools cannot match.

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