Nearly everyone has heard the term real estate appraisal, which is a property value assessment that takes a property’s condition, location, and other relevant factors into account. Appraisals are useful for sellers, so they know how much to ask for a property, and for buyers, so they know if they’re getting a good deal in comparison with other properties of the type in that area. A broker price opinion, or BPO, isn’t much different — it’s basically an appraisal of a property’s purchase price but from an actual commercial real estate (CRE) broker.
Here you’ll learn what a BPO is in commercial real estate, how it’s prepared, and how you can use information from ProspectNow to create one. If you’ve never created a BPO, the National Association of Broker Price Opinion Professionals (NABPOP) offers training for every real estate professional.
What is a Broker Price Opinion in CRE?
A broker price opinion in commercial real estate, also known as a broker opinion of value, is used to estimate the value of a certain commercial property. There are two main types of BPOs:
- Drive-by BPO—An analysis of a property based on exterior criteria, location, and other factors without viewing the interior.
- Internal BPO—A more in-depth BPO that covers the same criteria as a drive-by BPO, but that also carefully examines the interior of a commercial property.
CRE professionals, such as brokers, lenders, real estate attorneys, investors, and even certified public accountants (CPAs) use BPOs in determining how much a property is worth, whether to sell or buy a property and for how much.
BPOs can be simple, one- or two-page documents or detailed enough to warrant 40 or 50 pages. It all depends on why the BPO’s being created, the property that’s being analyzed, and the client’s requirements.
Overview of a Commercial Real Estate BPO
There are several steps in creating a BPO for commercial real estate. A top-level overview of commercial real estate BPO creation includes:
- Broker and owner tour the property.
- Broker gathers data about the property, location, and overall market for this specific property type and analyzes such things as revenue versus expenses, taxes, and any pertinent zoning laws and environmental data.
- Broker then creates two documents: an income capitalization analysis and cost of replacement analysis.
7 Steps to Creating a BPO in Commercial Real Estate
Let’s further break this down into the actual steps required to create a BPO:
1) Choosing the right form
There’s a specific format for a broker price opinion. You’ll get the BPO form from either the client’s lender or the mortgage company. It doesn’t matter if this will be a drive-by BPO or an internal BPO – the same form is used. But creating the BPO must be done on these forms for legal reasons. If these forms aren’t completed, the BPO isn’t legally recognized. The form also helps ensure you don’t miss anything.
As you progress through the BPO form, you’ll record the requested information in each appropriate box.
2) Deciding on the age/style of the CRE property
Every commercial property is distinctive and falls within a specific category known to the real estate industry. For instance, in residential properties, the term ‘ranch’ refers to properties with only one floor and no attic space. In commercial real estate, the wording used might be terms such as ‘single-tenant’, ‘multi-tenant’, or ‘zone-specific’.
Record how many rooms or offices are within the building. If this is a drive-by BPO, you can estimate this number. You’ll also estimate the age of the building and record that as well.
3) Take pictures
For drive-by BPOs, you must take at least two pictures of the property’s exterior. You can take more if you like, but two is the legally required number.
For internal BPOs, you’ll take pictures of the exterior and each interior room. If there is any damage to the property, photograph that as well.
All BPOS, regardless of type, must have notes regarding visual appearance, damages, cleanliness, and other noticeable conditions. Internal BPOs must have notes on each specific room’s condition.
Finally, note such things as normal wear and if there are any flaws in architecture.
4) Take measurements
Note each room’s measurements and the property’s total square footage. Unattached buildings must have measurements and square footage noted separately. Drive-by broker price opinions can include estimated measurements.
5) Note any repairs or maintenance required
This is only necessary for an internal BPO. Take note if it needs any of the following repairs:
- Structural damages
- Damaged or dirty flooring
- Broken windows
- Peeling paint or wallpaper
You’ll also note other issues, such as snow removal, lawn maintenance, or trash removal.
6) Conduct property and market comparison
A comparative market analysis (CMA) is required because any BPO is only the opinion of the licensed real estate broker or agent. You must review current markets for at least three commercial properties that are:
- The same size
- The same age
- The same style
You’ll also compare commercial properties along the same street and within the same neighborhood. In comparing these properties, you’ll come up with the FMV, or fair market value, of the property in question.
7) Finish the BPO forms
After you’ve input all the above data into the broker price opinion forms, sign the documents. Send these documents, along with the pictures you took, to the lender or mortgage company. They will then either authorize or invalidate the BPO.
It’s less expensive for lenders to have a broker or BPO company complete a BPO, but a broker price opinion is almost as comprehensive as an appraisal.
Use ProspectNow for Your BPO Research
ProspectNow’s complete commercial real estate database has the information you can leverage to create appraisal-quality BPOs fast and easy. We provide the following robust data on properties in every market:
- Owner information
- Sales history
- Lot size
- Asset type
- Tax history
- List price
- And more!
And we offer our data for much less than our competitors.
ProspectNow has been helping broker price opinion professionals and real estate agents just like you, find the information they need for their real estate business since 2008. If you’re ready to find more leads, close more deals, and make more money, contact ProspectNow for a free trial today.