Broker Price Opinion for an Apartment Building: What It Is and What It Isn't
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A broker price opinion (BPO) is a written estimate of a property's value prepared by a real estate broker. It is faster and cheaper than an appraisal, and it is useful for screening deals. It is not an appraisal, and lenders and investors should not treat it as one.
This guide explains what a BPO includes, how sponsors use it, how it differs from an appraisal and what to ask for before you rely on one.
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What does a broker price opinion include?
A typical BPO lists the subject property's basic facts, a set of comparable sales and listings, a price range and a recommended value. It may include notes on condition and market conditions. The broker signs it and states the license that backs it.
The strength of a BPO is its comparables. A weak one uses listings that never sold, sales that are years old or buildings in a different submarket.
How is a BPO different from an appraisal?
| Topic | Broker price opinion | Certified appraisal |
|---|---|---|
| Who prepares it | A licensed real estate broker | A state-certified appraiser |
| Standard | Broker's market analysis | Uniform Standards of Professional Appraisal Practice (USPAP) |
| Cost and time | Lower, often quicker | Higher, takes longer to order and review |
| Typical use | Screening, pricing, a second opinion | Loan approval, investor reports, financing |
| Lender acceptance for acquisition loans | Usually not enough | Required in most cases |
Where a lender orders its own appraisal, the lender's number controls the loan. Read the appraisal's assumptions, including the rent growth and the expense ratio it used, not only the final value.
How do sponsors use a BPO?
- Screening. Before you spend money on due diligence, check whether the asking price is near what a broker thinks the building is worth.
- Price check. Compare the seller's pricing with a BPO from a broker who knows the submarket.
- Second opinion. When a certified appraisal comes in far from the price, a BPO helps you ask why.
- Asset reviews. Some sponsors use BPOs to track value between full appraisals, with the limits stated in the report.
A hypothetical example
These figures are made up. The point is how to read the two numbers.
A 60-unit building is listed at $11,000,000. A broker's BPO gives a range of $10,300,000 to $10,800,000, based on four sales and two listings in the last 12 months. A certified appraisal, ordered by the lender, comes in at $10,500,000 using a 5.8% cap rate on the in-place net operating income.
The sponsor should ask three questions. Why is the BPO range below the asking price? Why is the appraisal's cap rate higher than the broker's comparable cap rates? Do both reports use the same rent and expense numbers? The gap is the work, and it decides how much the sponsor can pay.
What should you ask a broker for?
- The list of comparable properties, with sale or list dates and unit counts.
- The adjustments made to each comparable, such as age, condition, location and unit mix.
- The broker's license number and the date of the opinion.
- The assumptions for rent, expenses and cap rate, written out.
- A statement that the BPO is an opinion and not an appraisal.
For the numbers themselves, see the sales comps and exit value guide and the price per unit guide.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units under Rule 506(b) or 506(c). The deal page shows investors which valuation the sponsor used and whether it came from an appraisal or an opinion. DoorRaise does not value buildings or verify a seller's pricing. Setup is $1,500 (non-refundable), and the administration fee is $5,000 a year from closing.
Start with a sponsor page or see the fees.
FAQ
Can a BPO replace an appraisal for a loan?
Usually not. Most acquisition lenders order a certified appraisal and use it for the loan. Ask the lender what it accepts before you order anything.
Is a BPO free?
No. It costs less than an appraisal, but a broker still spends time. Ask for the fee in writing.
Why do a BPO and an appraisal disagree?
They use different standards, comparables and assumptions. The gap is often the cap rate, the expense ratio or the rent growth. Read both reports closely.
Should investors see a BPO?
They should see which valuation the sponsor relied on, the date and the source. If a BPO is part of the story, say what it is.
Sources
- Sales comps and exit value in apartment underwriting, for how comparable sales support value.
- Price per unit and apartment valuation, for a second check on the price.
- Example figures are hypothetical. No outside market data is cited here.
This article is general information, not legal, tax or investment advice. Talk to a securities attorney and a CPA about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.