Short Sales and Broker Price Opinions

A common purchase strategy for many real estate investors involves short sales. This occurs when the homeowner accepts an offer buy a real estate buyer to sell the home for less than the balance owed on their home mortgage. The mortgage lender must also agree to sign off on the purchase contract.
Prior to approving the short sale, a lender might order a report called a Broker Price Opinion (BPO), to determine if the offer is reasonable.

The BPO report provides a valuation of the subject property and is usually completed by a broker/agent or other license professional.

Banks also order BPOs to determine the value of bank owned homes to get them ready to list and sell.

Determining value

Some people refer to the BPO as a “middle-of-the-road” appraisal. It is not as comprehensive as a traditional residential appraisal, and cost about half the price. Similar to an appraisal, the brokers price opinion is a subjective determination of value.

As a foreclosures or short sale investor, you want the BPO to value the property as low as possible. Of course, the lender want as a high a value as the market dictates. Immediately you understand that the broker performing the BPO inspection will look to tilt the value in favor of the lender.

Types of BPO inspections

Lenders can order either a Full BPO or a Drive-by BPO. It works to the advantage of the short sale investor to have a full BPO inspection—interior and exterior inspection–conducted on the property. The chance are that if the owners are having financially difficulties in meeting their obligations, the interior or the home is probably in a state of disrepair or otherwise damaged.

Since you want the broker the assess the home at a low value, they can really understand the repairs that must be done, and make adjustment accordingly.

The broker will usually perform the following activities to complete a BPO inspection report:

1. Pull comparables for subject property
2. Take photos of the property—inside and out
3. Estimate repair costs
4. Form an opinion of the property’s market value
5. Write it all up the BPO report and submit it to the lender

You want to do all you can—legally—to get the BPO report to support your short sale offer for the property.

Meet the broker at the property

Dress professionally and meet the broker at the property. Make sure that the homeowner is not present. .You should take control of the situation, but without getting in the way of the broker.
Here are some tips for influencing the BPO in your favor:

  • Perform your own due diligence and bring comparable of properties that you feel best reflect the subject property’s value as you see it.
  • Complete your own repair estimates, which should range from cosmetic repairs like painting or missing door knobs to and major items like heating system or roof repairs.
  • Do not prepare the house for the broker- allow clutter to remain, replace broken window or light scented candles –absolutely no fix-up or repairs.

When the broker completes the inspection, ask to compare note. Find out if they have an initial estimate. If you feel the estimates are too high—now is the time to make your case.

Show the broker your comparables and repair estimate. Mention anything you feel lowers the value—crime statistics, limited access to public transportation or questionable schools.

Don’t make your case too aggressively and be reasonable in your approach. This is the BPO process and understanding it can make you a better investor when it comes to short sales and REOs or bank owned properties.

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