What is a Short Sale BPO? | Broker Price Opinion
Todays question, what is a short sale BPO?"
Lets start with point number one.
What is a BPO?
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.
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.
What do I mean when I say meet the BPO agent? 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. so that they don't come back with insanely inflated BPO evaluations. Moreover, we recommend that you prepare your own BPO and you hand that to the BPO agent.
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 take 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 in that third party validation BPO.
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 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.
What do I mean by 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 1-3 percent until you find a buyer.
This strategy does two things. On the one hand you are 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 tested 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.
This is a very effective tool in combatting inflated BPO's.
Lastly, value dispute.
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. in an effort to show the lender, their BPO came back really high and you have the evidence needed to support that claim. 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.