broker price opinion

When is an Offer on a Short Sale Too Low?

August 18, 2010 By Jon Griffith Leave a Comment

A short sale is not a bargain by default. Sometimes a lender will accept an amount below the Broker Price Opinion which could equal savings over the long term, in a market that’s increasing in value, obviously. If the market prices are still on the decline (more supply than demand), then buying a bargain below market value only assures you’ll be above board for a short time.

So, when it comes to offers on homes, the offer is too low when the bank says no, and on a regular sale, the offer is too low when the seller says no. In a short sale, since the parties to the transaction are still just the buyer and the seller, technically, the seller is the one who says no, but that’s based on common sense. Nobody who knows what they’re doing in the short sale arena is going to recommend that a seller sign a low-ball offer. Until the listing agent has navigated the bank’s personnel to acquire an approval for the seller, there’s really no way to know when the offer is going to be too low. If the seller signs a low-ball offer, it could tie up that property for a few months, which is not what you want to do when your seller is facing foreclosure.

Filed Under: Short Sales Tagged With: BPO, broker price opinion, low offer, short sale

Beating the BPO on a Short Sale

August 26, 2009 By Jon Griffith 1 Comment

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.

The Problem

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.

Filed Under: Short Sales Tagged With: appraiser, BPO, broker price opinion, CMA, Lender, short sale, short sale approval

A Few Things That Can Screw Up A Short Sale

August 23, 2009 By Jon Griffith Leave a Comment

Aside from the normal list of problems that a home can encounter through the Escrow process, there are a few things that happen that are specific to Short Sales that can kill the deal. I’ve outlined 5 that I have come across and a little bit about each experience.

Failure to Provide Documentation

Your REALTOR®’s job is to help you sell your home before it forecloses. This means marketing it well, pricing it right, attracting an offer, then submitting the offer to the lender. The process for each lender is different, but similar. There is one consistent factor that will slow down a short sale every time and that is the failure of the Seller to provide their REALTOR® with the documentation that your lender requires in a timely fashion. Every day you wait to provide that information is another day closer to foreclosure. When your REALTOR® asks you for documentation, make sure you provide it as quickly as possible.

Bad Broker Price Opinion (BPO)

One of the first actions that the lender takes on your house is ordering a Broker Price Opinion on the property to get a bottom line number from which negotiations can be based. BPO agents are many, and as expected, when you’re dealing with a lender who doesn’t know the market, you’re also dealing with a lender who doesn’t know that the BPO agent they’ve hired to provide the price opinion may also not know that market. If the BPO comes in at a price that your REALTOR® knows is invalid, or off-base, it places more of a burden on them to provide substantial data to prove that the offer that you’ve received is a fair market value offer. If you can’t prove that, then the buyer will need to increase their price, or you’ll be looking for a new buyer, and that eats up valuable time.

Poor Pricing Strategy

Your REALTOR® should have a pretty firm grip on the market where your property is located. This will enable him or her to develop a pricing strategy within the given time frame to lead the market in aggressive yet fair market pricing in order to attract an offer as quickly as possible. You’re selling short, so price is of little or no concern to you, as you won’t be seeing any of the proceeds. Your goal is to get out of the house as soon as possible. Follow your REALTOR®’s advice on pricing and price adjustments, provided he or she knows what’s going on. If they don’t, move quickly to find someone who is qualified.

Slow Response Times

In a real estate transaction, there are literally a dozen people involved in the process. In a short sale transaction, there are even more people involved. In fact, the people at the bank are probably the most likely to delay the process, and that’s pretty much a guarantee. It’s important that you have someone on your side who is quick about getting the information that you were quick to provide to the lender. It’s also important that your REALTOR® have the experience to orchestrate most of the transaction, including being involved in the buyer’s side of the transaction. Buyer’s lenders are the second most liable party in the loss of time throughout the transaction. Some of these you’ll have no control over.

Mortgage Insurance

If you don’t have mortgage insurance on your note, it’s possible that the investor who purchased your note took out a policy without you knowing. This is perfectly fine for them, but once the loan servicing company (the company that you send your payment to) approves the information that they have received from you and your REALTOR®, it’s time for them to submit the file to the investor. If the investor took out a policy on his or her investment, then they will have to deal with the approval of the mortgage insurance company, and that can be difficult, but possible. Many times MI companies will ask you to sign a personal guarantee to pay back a portion of the deficiency (what you’ll still owe after selling) instead of releasing you completely. I work hard to make sure this does not happen. After all, you’re selling your home for less than it’s worth, and you’re doing so because you don’t have any money.

In a real estate transaction, there are literally hundreds of things that can stop everyone in their tracks. The five short sale obstacles that I’ve offered you here today are some of the most common hiccups I’ve experienced.

Filed Under: Real Estate Basics, Short Sales Tagged With: broker price opinion, foreclose, foreclosure, short sale