What is a broker price opinion short sale
Have you ever wondered how banks determine the fair market value of real estate? How do they determine an approved short sale price? Where does the minimum bid at a foreclosure auction come from? How do banks determine the loan-to-value ratio for a loan modification or refinance?
In many cases, the answer is by ordering a BPO. A BPO is short for a Broker Price Opinion, which is a report prepared by a real estate broker that gives their opinion of the current market value for a particular property. In this market downturn, the BPO has become an important tool that banks use to determine an estimated value for properties that are being foreclosed, properties that are in a short sale or properties that are candidates for a loan modification or mortgage refinance.
Banks need a neutral party to estimate values for a variety of reasons. Most importantly, they want to know what their equity or lack thereof is for a particular piece of real estate. There are a variety of Automated Valuation Models AVM that banks can use for a what is a broker price opinion short sale estimate of property values, but real estate is highly localized, and there is no substitute for an in-person, local analysis of a property and its neighborhood.
Here are the criteria that are evaluated as part of a BPO:. By their nature, BPOs and appraisals are designed to be free of influence by parties who have a vested interest in the transaction. Actually, for an exterior BPO, you may not even realize that your property has been visited and a report completed.
But if an interior BPO is ordered, you may know that the broker is going to visit the home. Applying pressure or trying to influence the final value of the BPO is a big no-no, but if there are important facts or hidden details about a home that will influence its potential value, educating the broker about these can be appropriate during their interior inspection. If you think this sounds like an appraisal, you are correct. Appraisals serve the exact same purpose as a BPO, but are performed by licensed appraisers and involve a deeper analysis of the property.
Appraisals are more costly and time-consuming because they involve an interior inspection, along with floor plan sketches and square footage measurements. Banks utilize BPOs as a lower-cost, quicker alternative to appraisals in a variety of situations. There is considerable debate in the industry between brokers and appraisers about the qualifications and education level of real estate brokers compared to appraisers.
Appraisers do have more formal training than brokers when it comes to property valuation, and in theory should be better equipped to provide accurate property value estimates. Speaking from practical experience, however, there are good and bad appraisers, and a knowledgeable broker may be equally skilled in preparing an estimated value. The debate between BPOs what is a broker price opinion short sale appraisals is a valid one, but the current market economics pretty much dictate that BPOs are a preferred method for banks to value their loan assets.
BPOs have faster turnaround times and usually cost a tiny fraction of what a formal appraisal does. Banks still use formal appraisals in many situations, but the BPO remains a what is a broker price opinion short sale tool for many banks. Here are the criteria that are evaluated as part of a BPO: Brokers need to visit the property in person and take photos of the home and neighborhood, paying special attention to any obvious defects on the outside.
It is a little challenging to determine an exact value without seeing the interior, but you have to estimate what it might be like based on the exterior appearance and any historical data and photos that can be found.
Comparable Properties — BPO reports usually include 3 comparable properties that are currently on the market and 3 comparable properties that have sold in the past months.
Within a 1-mile radius of the subject property. Finished basements carry very little weight compared to above ground living space. Usually it needs to be within a year range for modern properties and a year range for older homes. Neighborhood Data — BPO reports include neighborhood statistics to help the bank get a better understanding of current market conditions. Are local property values declining or stable? Are there many bank-owned and short-sale what is a broker price opinion short sale that are dragging down values?
What is the average marketing time for listings in the neighborhood? Adjustments — No two pieces of real estate are the same. You may find a home that is nearly identical, but has a better view. Sometimes a home is very similar, but has one extra bathroom. What is a broker price opinion short sale reports usually include adjustments, which are amounts that a broker estimates a buyer would apply when making an offer.
Repair List — If obvious repairs are needed, like a new roof, those are incorporated with adjustments to the property value. Value Estimate — Based on the recent sales of comparable properties, the broker will provide an estimate of what the property will sell for during a typical marketing timeframe. Your information has been what is a broker price opinion short sale and we will be in touch with you soon.
BPO stands for brokers pricing opinion. That is just a fancy way of saying the lenders appraisal within the context of a short sale transaction. The lender will send out a BPO agent to a very surface level appraisal of the home.
In some instances they will do what we call a drive by BPO. Literally, they will drive by the house, maybe take a picture or two and then base their evaluation on that very limited set of data.
Well, if you are a listing agent you want to be sure to meet the BPO agent at the subject property. That is because of these surface level evaluations that tend to come back very high. They tend to be a little inflated. So if you are a listing agent its in your best interest to meet the BPO agent at the subject property and make them aware and point out defects in the home or repair issues, etc.
Often times they say that you cannot influence them, but in most instances they'll accept it. That is our way of educating the BPO agent. Educating them with intent. It is human nature to what is a broker price opinion short sale the path of least resistance. If somebody has already prepared a validated BPO for you, you are going to be tempted to look at those numbers. If you are a BPO agent you are most likely going to base you information on the data what is a broker price opinion short sale that third party validation BPO.
What do I mean by stair step price reduction? Well, you want to effectively employ this strategy when establishing a listing price history of the home. You want to establish non-distressed comps. When you are establishing that initial price point you want to start with non distressed comps.
Well, distressed comps are foreclosures, pre-foreclosures, REO's etc. You want to start with equity deals. At that point you want to start with a weekly stair step price reduction of percent until you find a buyer. This strategy does two things. On the one hand you what is a broker price opinion short sale finding a buyer quickly. You are insuring that you are finding a buyer within relatively short order. Which is critically important because we know that none of this is possible without the buyer.
Number two, and just as important, is we are establishing a listing price history. We are showing the lender, hey lender were trying to get you guys as much money as possible. We started way up here and then we what is a broker price opinion short sale all the various price points and this was our sweet spot.
This is where the offers started pouring in. It is very difficult for a lender to dispute that when we have a solid listing price history clearly demonstrating that we've tested these various price points. What happens if we effectively employ all of these strategies and we still come back with an inflated BPO?
Well at that point you want to be sure to engage your lender in a value dispute. And in doing so you want to create a compelling clear and concise packet supporting all of your assertions. That means inspection reports that means repair costs bids, current comps etc. They will see that your BPO is not in line with fair market value. If you are a listing agent and you are employing these strategies effectively then chances are you wont have any issues with inflated BPO's.
Download the free PDF. Short Sale Education Your questions, answered. Find out everything you need to know about Short Sales. Todays question, what is a short sale BPO? What is a BPO? It is a very surface level appraisal conducted by the bank in anticipation of a short sale. The next step is meet the BPO agent. The third point, stair step price reduction.
Here is another effective tool you can use to combat inflated BPO's. What do I mean by non-distressed comps? This is a very effective tool in combatting inflated BPO's.
Sign up for this week's free webinars hosted by experienced investors or view previously-held webinar recordings in the Archives. Are you a wholesaler, a rehabber, a landlord, or even a turnkey investor? Simply put, the Broker Price Opinion, or BPO, is an valuation or estimation of a property completed by a real estate broker or other licensed individual. For the short sale agent or real estate agent, a BPO is typically ordered by the bank or lender when considering a short sale offer.
The BPO value provided by the agent that is a result of the BPO inspection is typically used by the bank to compare against the short sale offer that was made to see if the offer is reasonable. The BPO does not necessarily need to come in lower than the offer being made; but if there is a big gap between the BPO value and the Short Sale offer, the bank or lender will be more likely to question the deal and its validity.
After all, it is called a broker price opinion. The problem with the BPO for the short sale professional is that, as an investor or agent trying to gain short sale approval from the lender, you want the BPO to come in as low as possible and, of course, still be an accurate number — any lying or shell games here is grounds for serious legal consequences!
Meanwhile, the lender wants the BPO value to come in as high as possible. Remember, you want the BPO to come in as low as possible; so seeing interior damage is important for the broker to really understand the true nature and magnitude of the repairs that must be done. Also, having the broker visit the property directly will let you meet him or her; which we will talk more about below. That end result — the opinion — can make a huge difference in your deals.
A high BPO can and routinely does kill deals. You can sometimes get the bank to order a second or even a third! BPO, but your goal should be to get the BPO at a value that supports your short sale offer, the first time out. So, there you have it.
The BPO process and how you can help influence the what is a broker price opinion short sale in a nutshell. Any stories on what you have done to handle a BPO? Looking for What is a broker price opinion short sale Sale Software? Visit Short Sale Artisan today! Nick Reuterabout 8 years ago. Ted Akersabout 8 years ago. If you signed up for BiggerPockets via Facebook, you can log in with just one click! Log in with Facebook. Full Name Use your real name. Password Use at least 8 characters.
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Get the book now. Real Estate Books Shop books covering real estate investing and personal finance. Real Estate Forms Leases and what is a broker price opinion short sale legal documents for landlords. Log In Sign up. So, what is the broker actually going to actually do to complete the BPO? Pull comparables Take photos of the property and the surrounding area Estimate repair costs Form their opinion of the properties value in the market Write it all up on a short report and send it to the lender That end result — the opinion — can make a huge difference in your deals.
So; with that said, how can you legally! The broker will pull their own comparables, and so should you. Remember, everything is subjective. Bring properties and values with you that you think best represent the value of the listing, and share those with the broker. Create your own repair estimatesas well, so you can compare notes with the broker. Your repair estimates should include both the more cosmetic items like peeling paint and damaged counter tops as well as the more serious issues like foundation cracks or a leaky roof.
Not everyone will recommend this, especially Virtual Investorsbecause it takes time, but you what is a broker price opinion short sale should show up, especially if the location is nearby.
What is a broker price opinion short sale, if you do a lot of what is a broker price opinion short sale, it will help to develop a relationship with the broker doing the BPO. Make sure the broker themselves come to the property some brokers will unethically send in surrogates for a cut of the lender payment — and make sure the borrower is NOT home!
To control the situation to the best of your ability, you should be the one there answering questions. Keep the property as-is, no fix-ups! You want the house to accurately reflect the condition it is in. If there is damage, point it out. If the broker missed something, make what is a broker price opinion short sale note of it, especially in areas what is a broker price opinion short sale they might not look like the attic or the basement. Follow Up and Close Strong! When the broker finishes their walk through, you should compare your notes.
Ask them if they have an initial ballpark estimate. Make sure you mention crime statistics and other neighborhood items if they forgot.
You can even give her your suggested property value. Remember, this is your last opportunity to mention anything they missed, so make sure you take advantage of it! Whatever you do, do not be overbearing! Like everything else in the short sale process, you need to be honest with your property, but ethical as well. Being reasonable with the broker will earn you respect. Appreciate the positive feedback!
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