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Short Sale Tip of The Week 7-1-09
Posted on 30. Jun, 2009 by ctlms in Short Sale, foreclosure
Why the BPO is the most important part of a short sale!
So you have had a short sale listing for a while and you finally have an offer. The offer has been accepted by the sellers and all the required documents have been gathered from them. You, or your professional negotiator, have created the estimated HUD-1. The short sale package been professionally assembled with a well thought out offer sheet and other additional documents included. And it has all been faxed to the proper location at the lender(s). Now you just sit back and wait for the acceptance....Right?
Wrong!
The next step for the Real Estate agent is the crucial BPO. The banks evaluation of the current value of the property.
A BPO is a Brokers Price Opinion. Similar to a CMA but more detailed and more closely resembles an Appraisal. As a matter of fact Government loans such as FHA and VA will order an actual appraisal. But most lenders are cheap and order a BPO for about $150.
The problem with BPOs is that they are often done by real estate agents from outside the area. Also the bank sets the required guidelines for the BPO and they can be unrealistically restrictive. Such as requiring the value of the property to fall within the range of the comps used. Which would mean if the comps ranged from $150,000 to $165,000 the value would need to come in within that range, even if the roof was missing or there were other issues that would reduce the value of the property.
Also BPO agents are paid very little to do these valuations and cannot justify spending much time on them. That is where your work comes into play.
You should always meet the BPO agent at the property. Do not just give them the lock box code and let them go on their own. Meet them with a copy of the offer, any and all comps that justify that offer, a list of needed repairs and any market statistics that demonstrate the current market conditions. Also print out the listing history showing all the price drops and any showing feedback that stated the property was in bad condition or the price was too high.
In todays declining market, a BPO that uses 6 month old comps will certainly come in higher than the offer. Showing the agent market stats, for instance, that show a 5% drop in the last 6 months will help to avoid that. Plus if they like your comps, they may use them rather than search out their own.
There is nothing more important though, than rapport. If the BPO agent likes you, they are more likely to do what they can to help you get what you need. Telling them the plight of the homeowner in distress can't hurt either. Also be sure they see any defects in the property and preferably take a photo of it.
Lastly, always ask the BPO agent if they think the BPO will come in around the offer. If we know what the BPO is, we can estimate what the bank will want to net from the offer. Then a day or so later, call the agent up and ask if they have everything they need for the BPO or have any questions. Then ask what the BPO came in at.
This brings us to why the BPO is so important. All the investors behind loans, such as FHA, VA Fannie Mae, Freddie Mac, etc, have discounting guidelines. These guidelines determine what the bank will want to net as a percentage of the BPO. That's right, the BPO is what is important at this point, not the amount owed. For instance VA will accept 88 percent of the BPO as the net to them from an offer. If the closing cost are say 7% of the offer, that leave 5% to play with. So as long as the offer is not less than 5% below the BPO the offer would fall within the guidelines and most likely be accepted as-is with little negotiation. If it were lower than that, or the BPO came in higher than it should, it drastically reduces the likelihood of a successful short sale approval.
So the big take away here is, do not underestimate the importance of the BPO. It is crucial and requires your utmost attention and due diligence to avoid an unrealistically high BPO that will surely kill your deal. As we all know, a dead deal pays no commissions.
That's a rap for this week. See you all here next week for my next Short Sale Tip of The Week.
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2 Responses to “Short Sale Tip of The Week 7-1-09”
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Bio
Sean Wilder started in the pre-foreclosure business in 2007. Previously he enjoyed successbusiness in the transportation industry, real estate investing and as a licensed Realtor. Sean brought the same determination and work ethic that lead to great success in his previous businesses to Loss Mit Services based in East Windsor, CT. His focus, combined with his drive to succeed, have been essential to his success as one of the area's top short sale negotiators.
Known for finding creative ways to overcome hurdles and never ending persistence; Sean, believes in the power of team. Sean and his team are in the trenches everyday, plowing through challenges and objections while negotiating with various lenders, and finding solutions to difficult problems. It is this daily experience that brings Loss Mit Services consistent success and provides them the knowledge to share.
Sean belongs to a number of industry groups and associations that allow him to collaborate, share, learn, teach and stay updated on the latest changes in the pre-foreclosure industry at the federal, state, local and lender specific levels.
Effective Oct 1, 2009 all debt negotiation companies that offer loan modification, short sale, or foreclosure rescue services needed to be licensed by the CT Dept of Banking. Sean and his company Loss Mit Services were the 1st to be awarded the Debt Negotiation License NMLS # 828273 which can be verified at the CT Dept of Banking Website by Clicking Here. In addition, effective Oct 1, 2011 Debt Negotiators were required to also be licensed Mortgage Loan originators and Sean also has received this license, NMLS# LO-831853.
As an active BPO agent, we are not allowed to converse with the listing agent or owner about valuations we do on the property. It is actually only information that is provided to the lender/ valuation company that ordered the Interior valuation ( BPO) I also do not agree that a contract should not be given over to us, along with comps. Valuation can not be forced. Yes, I can see your point on pointing out damages and highlights of the property, which is totally fine, but we are NOT allowed to look at contracts or third party comparables. They are not permisable in the BPO. Also, you mention that the BPO must fall into a "range" if a roof is missing or something. That is absolutey not true. If the subject property is in Fair to Poor condition, the same condition comparables must be used. If those comparables are not avaliable, then comps from the current neighborhood need to be used, and adjustments need to be made comparing a good property to poor conditioned property such as the subject in this example. Than a valid adjustment for the subject PRICE REPAIRED, REPAIR/DAMAGE amount and AS IS value for the property is calulated. Once upon a time that might of been the case, but valuation companies & lenders ( quality control departments) are changing the standards. Just wanted to throw my cents in..but the best advice I can take away from this post is showing the BPO agent the damage...going any further is a conflict and against many of our policys.
Thank you for your comment. But I must disagree. The analogy is similar to an appraisers responsibilities. They also should not be influenced by anything given to them or said to them by an agent that may meet them at the property. However, many, many agents make sure that they meet the appraiser at the property and show them the contract and good comps. It's the same here. There are many BPO agents out there today that are cranking out BPOs as fast as possible so they can cash as many of those little checks as possible. And there is nothing wrong with that, until their speed affects their work. I have seen numerous BPO values that have been submitted on short sales that were in no way justifiable if you really looked at the property and made good solid adjustments for condition. My point to the “value range” was obviously exaggerated for demonstration purposes. However once again I have experienced firsthand the restrictive nature of what the lender will and won't allow for adjustments, regardless of their actually affect on the properties value. I recently had a BPO agent who was doing his second BPO on the property, tell me the bank would not allow his adjustment for the location of the property and its proximity to an extremely hazardous property. Everyone who looked at the property had the same comment, "I am not living next to that property". So there was a major affect on the value. But the lender only allowed the BPO agent to take half the adjustment he felt was correct.
The whole point is that the BPO is so important to the bank’s decision that the listing agent cannot leave it up to chance. You must meet the BPO agent and make sure they have all the information they need to accurately determine the value of the property. If they do not look at it or us it, and do their own research, GOOD. They should be doing that, but if the agent you get is lazy or overworked with 20 BPOs that day, at least you made sure they already have what they need, whether they use it or not, you cannot control. But you did everything you could on your clients behalf. Plus, if you meet the agent you can get an idea of how thorough they were when they were at the property. If the value comes in ridiculously high, that is more information we can present to the lender to contest the value or have a new BPO ordered.