2nd’s Wasting Money on Broker Price Opinions
BPO’s are part of the valuation process when a bank considers taking a short payoff on a short sale. It stands for Broker Price Opinion. It’s the same process that any sales representative (agent) goes through when they help a client determine the potential value of a home before listing it for sale, or writing an offer on a purchase.
When a seller submits a contract to their lender for approval, the lender or servicer orders a BPO through one of many online networks of agents who have registered to perform these evaluations.
The purpose for this process is to get a 3rd party opinion of value from someone who has no interest in the transaction. It’s less expensive than a certified appraisal, and often more erroneous (as an appraisal is still just an opinion of value) because agents aren’t usually appraisers.
The opinion of value is compared to the agreed upon sales price to determine if the loss-tolerance falls in the bank’s acceptable range.
The 2nd Mortgage
Whomever holds 2nd position, or 3rd position on a house also has an interest in the property, however, they typically get no more than 10% of the balance of their note, and in many cases, less. What’s absolutely ridiculous, is that the 2nd and 3rd positions, also order a BPO when they receive a request for short sale approval.
BPO’s cost money. The sole purpose of a BPO is to compare the value of the house to the purchase offer so a NET payment can be calculated. If the 2nd is only getting a 10% settlement on their note, or less, then the value of the home has no bearing on their loss.
A $100,000 home with a $120,000 first mortgage and a $30,000 second is put up for sale and brings a buyer who is willing to pay $100,000. After closing costs, the net payment to the 1st is approximately $90,000. Since there’s a 2nd who is owed $30,000, the 1st will typically agree to allow $3,000 to go to the 2nd. If they don’t, then there won’t be a clear title, and the house can’t be sold. So, the 1st get’s $87,000, the 2nd gets $3,000, and the deal is done.
The point of the matter is that 2nd mortgagees ordering BPO’s to determine the value of a home makes no sense when the value of the home is going to have no bearing on the amount of money they recover from the short sale.