Beating the BPO on a Short Sale
The BPO is the Broker Price Opinion. It’s an opinion of the value of a home by a licensed real estate agent, not by a certified appraiser. Before any home goes on the market, your real estate agent will conduct a Market Analysis of your home, neighborhood and neighboring sub-divisions. He or she will recommend a price range. You, the “seller” will determine the final asking price. The home will then be listed for sale and the marketing will begin.
Short Sales are similar, but since the seller will not be receiving any of the proceeds of the sale, and the lender will be paying the commission on the sale, there is no reason for the seller to be concerned with the initial price of the home, and subsequent price reductions, provided his or her agent can show that the initial price is not off base and is in fact in line with fair market value.
Investors want as much as they can get out of the home, but for the sake of time, to avoid foreclosure, they will typically take less than fair market value. The difference in cost to the investor (the one who purchased the loan) between a foreclosure and a short sale is in the tens of thousands of dollar. It is typically better for the investor to take a discount off of fair market value than it is to let the home go into foreclosure.
When an offer is received on a short sale property, it is submitted to the lender along with all of the seller’s required documentation, which is similar, but not exactly the same for each lender. As soon as the lender catches wind of a pending sale, they will order an independent internal BPO from an authorized broker.
BPO agents don’t make very much money on each property they assess. They also aren’t always familiar with the market where the subject property sits. This can typically lead to a very inaccurate and lazy BPO reports. When this happens, the investor will usually formulate a bottom line net proceeds dollar amount that they will be required to be paid at closing that’s too high.
If everyone does their job correctly, the listing agent, the buyer’s agent, and the BPO agent should all find a reasonably close comparison in price. When this happens, the lender will usually approve the sale.
When we learn of a bad BPO, in other words, if the bank expects more than is reasonable for the market, we typically have to head out on our own to do an exhaustive analysis of the market area to illustrate the error. By doing so, the lender will typically order a 2nd BPO.
It is assumed, however, that the listing agent did his job well and came up with the right price from the get go. Not always possible in this changing market.
Beating a BPO takes time and tedious number crunching, but it can be done. I recently showed the loan servicing company on one of my listings that they were severely off base on their price opinion and as a result, because I know the market in that area, and they don’t because they are in a different state, they approved the sale.
Don’t take the lender’s BPO as the final authority. Your realtor should be the expert in the market area. That’s why you hired them. Although, the term expert is used quite loosely, he or she really should be in touch with what’s going on.