When the Short Sale Offer is Too Low

Upon receiving an offer from a seller, the seller’s lender sends someone out to provide a price opinion of the property’s value.  This number is stacked against the current offer, and if it falls within a certain range, the bank will approve the file.

In our current Phoenix market, we’re expecting another round of defaults due to the extensive number of Option ARM mortgage products that are resetting, which means the supply will increase again.  Any time you increase supply, the median price falls.

As we see more inventory hitting the market, it’s going to be more and more difficult to transition from our recent and relatively flat price trend where speculation of price increases have fueled false hope into a time where prices are expected to continue to fall.

As a result, broker price opinions (BPO) which the banks use to determine if the short sale offer is enough, may become more and more inaccurate.

When the offer is actually too low

So what happens if we run comparable analysis in a neighborhood and we determine that the BPO performed on that property is probably right on, and the offer isn’t high enough?

The banks don’t provide their BPO value directly to us unless we can wrangle it out of them.  The BPO agent cannot disclose the amount, so we come to a point where it’s the lender’s word against ours (unless we analyze the market and come up with the same information.)  If we find that our BPO matches the bank’s evaluation, it’s likely that an experienced agent was used to provide the BPO, in which case we can trust that the bank is telling us what to expect.

The problem we have is that we have to go back to the buyer’s agent and tell them that the price is too low, and if their client wants the property, they’re going to have to raise the price.  There’s nothing in writing substantiating these requests.  The buyer’s agent must use his or her expertise to provide their client with their own broker price opinion of value to show the buyer that we aren’t just making up numbers, and the increase price is warranted.

Sometimes this isn’t the case, and the seller may be trying to reduce their deficiency with the lender.  What I’ve found in the short sale market is that homes really end up finding a sales price closest to a fair market value than they do being over priced or a “steal.”

The whole deal hinges on the BPO, and sometimes when the offer is too low, it actually does need to be increased.

Other articles of interest:

• September 10, 2010 -- Agents Owe It To You, No More Attorneys Negotiating Short Sales
• July 25, 2009 -- The Coolest Wedding Entrance EVER!
• January 2, 2009 -- The Best Task Management Software on the Planet
• July 27, 2009 -- Pre-Approved Short Sales Do Not Exist
• September 18, 2008 -- Leveraging Your Money to Get Rich Part I