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If I have one regret, it’s not having discovered and incorporated a BPO department into my real estate businesses earlier on. This is the simplest profit center for a real estate brokerage, and where I would advise anyone opening a real estate office to begin.
The operation can be set up easily, with every brokerage already having all they need to implement it, and once set up, it requires almost no supervision. This is a “set it and forget it” department in your brokerage that can easily generate an additional $20,000-$40,000 per month in net profit.
A BPO, or broker’s price opinion, is a value, condition and occupancy report — basically, a glorified comparative market analysis (CMA). Broker’s price opinions are ordered by institutions to get a quick value on a parcel of real estate, the majority being single-family residential properties.
They’re most often ordered when a loan goes into default with the borrower falling behind on their payments. At this time, a decision must be made as to whether to begin foreclosure or to attempt a workout, short-sale or other resolution. To reach that decision, the value, occupancy and condition of the property must be verified. The requester will typically ask for both an as-is and an as-repaired value, along with an estimate of “costs to cure” (repair or update).
Rather than order expensive and time-consuming appraisals, many firms prefer to order BPOs from a local agent with turnaround times being two to five days. A BPO is not as detailed as an appraisal but is more in line with an enhanced CMA, and covers occupancy, overall condition and marketability of the subject property.
Recently, there has been a surge in BPO requests even when the property itself may not be in default. This rise is attributed to the loan portfolio and pool sales between banks and other funds that invest in home mortgages, as the purchasing entities need to know the value of the assets securing the loans being purchased.
A great business has high profit margins, renewable income streams and repeat business, is easily scalable and sells a consumable product. Essentially, it’s everything a traditional real estate brokerage lacks, but a BPO department can bring all these features.
Starting up your brokerage’s BPO department is simple. Many clients order BPOs directly and maintain their own broker network while others use valuation firms, aka BPO mills. These are where you will receive your orders and payments from. It requires registering online with financial institutions and other firms that order these reports. A little time on Google will help you locate these registration pages.
Total cost per BPO will run your office roughly $15–$19 each, against average revenue of $50 per BPO. This is a phenomenal profit margin. More importantly, it can be easily scaled. The cash flow opportunity is wonderful too, as most clients pay in 14-30 days.
Most BPOs are drive-by, requiring the completion of the BPO form and exterior photos. Interiors may also be ordered but typically at a much higher fee, in the $75-$100 range. Most offices pay for photos at $10 per set, and utilizing your existing agents works well for this. Agents are quite capable of taking photos with their smartphones and following a checklist. Agents will need to take photos and notes on the properties, requiring one short visit to the property. A good understanding of basic construction and remodeling costs in your area is helpful.
Although many of the BPO forms have between 300 and 400 fields that must be filled out, most fields deal with the comps themselves, and this information is available to you from your local MLS. Historically, this was a very time-consuming task, but today’s BPO automation tools can quickly auto-populate this information.
One $20-per-hour employee can usually manage four to five BPOs per hour (30 per day). Thirty per day at $50 per order is $1,500 per day in revenue, less an average cost of $16 per order ($480), leaving a profit of over $1,000 per day.
It typically takes about 90-180 days to ramp up to a good volume of 20 orders per day (600 per month), resulting in a net profit of over $20,000 per month. I know many brokers, myself included, who have scaled their BPO departments even higher than that.
There are other benefits to establishing a BPO department too. Most BPO orders are being utilized on defaulting loans and ordered by the firms that control the REO. This can be the best way to receive the REO listing. REOs have tremendous value to a real estate brokerage. According to our association’s research, there are over 150 firms that manage defaulted properties and another 15-20 active BPO mills that you can receive BPO orders from. These are the firms that you need to be registered with to receive both BPO orders and REO listings.
Although the dollar amounts to be gained from a BPO department may seem small compared to sales commissions, the margins are better, and this is all about volume. After all, the average Taco Bell restaurant brings in $1.6 million per unit per year, selling items for only a couple of dollars each.
This is the quickest and easiest way to generate immediate and renewable cash flow for a real estate office.