So You Have a Short Sale Lined Up - Is the BPO Your Friend - Step #10
by John Occhi, Hemet - San Jacinto Valley REALTOR
Hemet - San Jacinto CA Real Estate
A "Broker Price Opinion" or BPO is a critical step in evaluating the market value of a property. Mortgage lenders will order them to evaluate a number of different real estate transactions. A BPO is used for everything from portfolio acquisition to checking on a properties condition when the first or second payment is late - and they don't have to be consecutive late payments. Most importantly for the real estate investor, a BPO is used to determine when to foreclose on a property, to evaluate short sale offers and finally to establish a sales price once the home has been foreclosed on.
For the sake of this article we will focus on the BPO used in the process of short sales. It should be noted that the lender will typically order at least two of their own (using different REALTORS to evaluate the property) by the time it gets to this stage and if they see conflicting data they will order additional BPO's to establish the value.
The BPO is used to determine Fair Market Value of the subject property. More often than not, the BPO is an exterior report only that typically consists of pictures of the front of the house, and address verification picture and pictures of the street. In addition, if there are any detectable repairs or deferred maintenance issues, the broker will typically photograph those areas as well.
The broker will conduct a market survey analyzing at least three active listings and three sold listings that are the most similar to the subject and the closest to the subject. Acceptable comps will vary allowing for a 25% deviation in the square footage of the home and allow for one bedroom larger or smaller. Homes should also be within 10 years of the age of the subject - either older or newer.
Once the properties have been selected, adjustments are made on the above factors as well as lot size, total room count, amenities and upgrades as well as location and overall condition.
The BPO not only looks at the house in foreclosure it must take into consideration the neighborhood conditions as well as trends in the market. The BPO should report on how many homes are currently on the market in the neighborhood as well as looking at the average Days on Market (DOM).
Other considerations are given to the economic conditions and trends in a neighborhood; i.e. employment, crime, schools and anything else that affects the value of the property - either positive or negative.
As an investor ordering the BPO to include in your short sale package you should consider meeting the broker at the property and order an interior BPO if there are damages that would help build your case. If the inside is pristine - then don't worry about the interior.
It never hurts to have comps available to provide the BPO agent - as long as they are legitimate comps. Ethically, the BPO agent will have to research the real estate market on their own - but having reliable resources never hurts anything or anyone.
When working with a BPO agent, always remain ethical. If you research on the web, you will find many examples of what not to do. Remember, you are not looking for a homerun every time you come to bat, you just want to get a good deal and a clean deal - get on base and make a few bucks for your effort.
Now Have a Blessed Day,
John Occhi, Hemet CA REALTOR
Mission Grove Realty
Loss Mitigation Consultant
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