Setting a price for a short sale is the delicate art of balancing what a buyer will pay and what the lender will approve. With thousands of distressed properties from across the country in their portfolio, the lender has no idea what the market value of an individual home is. That’s where the Broker Price Opinion (BPO) comes in.
Once you request approval of a short sale from your lender, they will commonly hire an appraiser or BPO broker to help them determine the value of the property. This guest column from one of our partners explains how BPOs work, and how we can work with you to ensure that your BPO number is the right number.
According to Nadia Kourehdar, Lead Associate Attorney at the Ark Law Group:
A BPO is something like an appraisal – but slightly different. With a BPO, a real estate agent who is familiar with your area is hired by the bank to go out to look at your property and provide a report.
The BPO report gives information about the condition of your home, as well as recent sales prices of comparable homes in your neighborhood. In contrast, an appraisal is conducted by a third-party, a licensed appraiser. An appraisal is usually more expensive and more detailed than a BPO. An appraisal also takes more time than a BPO. It’s possible that a lender will order a full appraisal and refer to it as a BPO, but it’s more often an opinion offered by a real estate broker.
The BPO value is the amount the lender expects to be able to sell the house for at auction, after foreclosure. It lets your mortgage holder know whether your short sale offer is better than that auction price. If the BPO value is too high, your mortgage lender won’t approve your short sale. So you want to be sure your BPO really is the right number.
This is where a real estate agent experienced with short sales can help you. We recommend that a copy of the sales contract is given to the BPO agent, so that they will know exactly what the offer amount is. This straightforward approach shouldn’t be ignored.
In addition, a large factor in the BPO agent’s determination of value is their review and analysis of the listing price history. They will assume that the value of a property is close to the last list price. Therefore, we advise listing agents to create automatic, stair-step price reductions that demonstrate to the BPO agent that all price points were tested and that the final list price reflects the true fair market value. If a property is last listed at $225,000 and the buyer writes an offer for $200,000, for example, we further recommend that the listing agent reduce the list price to $200,000 before accepting the buyer’s offer. If the list price had been left at $225,000, the BPO agent will likely assume that the purchase price was close to $225,000. In that case, the bank would never accept the short sale offer.
It’s helpful to know about the two types of BPOs.
The exterior or drive-by BPO allows the broker to gather information without going inside your home. The broker will look at more than your home – he or she will look around your neighborhood, too. They will note whether your home looks occupied, how much parking is available, lot size, estimated square feet and estimated room count. They’ll look at the condition of your home – but only from the outside. The drive-by BPO report will also include prices and information about three recently sold, comparable houses in your neighborhood as well as three currently listed comparable properties. Unfortunately, it’s possible for BPO agents to sit in an office filling out BPO reports while an assistant quickly runs by the property to take any required photos. As a result, the “comparable” homes the agent selects are nothing like the actual property conditions.
An interior BPO includes everything a drive-by does. It will also include information about damage that can’t be seen from the outside and repair estimates. Clearly, an interior BPO is more accurate than a drive-by.
So, knowing all this about BPOs, you can see why it’s critical that the reported value match up with your short sale offer. Here’s what we recommend when requesting a short sale approval from your mortgage lender.
- Ask for an interior BPO. The more data the broker has about any problems with your property, the better.
- Make sure your real estate agent is present when the broker comes to evaluate your property. Your agent can point out any issues, answer questions and walk through any damage with the evaluator. Your realtor can also give the BPO broker the first page of your sales contract, the hardship letter and even their own validation BPO report – complete with the comparable properties in your area. If possible, include an inspection report and a contractor estimate for repairs of all damages. When the BPO broker has all the data, he or she can put together a far more accurate report.
- Request a copy of the report. If you ask for this, in writing, you’ll be able to see what might have been missed by the broker. This is a long shot. Lenders don’t typically provide the report. But you may learn the reported value or a range of value. If it is an FHA appraisal, by law they have to share.
- Request a new BPO, if needed. If the value comes in too high because something was missed, you can ask for a new evaluation.
- Get an extension, if you need it. BPOs expire in 90 days. If you are getting close to a sale, you will want to ask the lender to extend the 90-day deadline before it expires, so that there’s no further delay or, even worse, the short sale offer is declined by your bank.
The BPO isn’t the only information a lender uses to decide the value of a home and approve a short sale offer. They may have an internal department that has access to other tools that appraisers and BPO brokers use – and that department may come up with a different number from the BPO. Other players may also be involved – such as a mortgage insurance company – and they will have their own review processes for evaluating your property.
When you get a counter offer from the lender that’s much higher than what the buyer offered, you can ask whether the counter is based on the BPO value. (The lender usually will accept a specific, predetermined percentage of the BPO in a short sale.) If the lender tells you they can’t release that information, you know the BPO value is lower than their counter. Then you can advise the seller to offer a little more – but not go all the way up to the counter offer.
Let us help you make your short sale a success.
Call us at 425-381-2233 and we can arrange for a free consultation.