BPO - How to Kill a Short Sale

For those who don't work short sales or foreclosures, or just not familiar with the term, BPO is an acronym for Broker Price Opinion.  A BPO is nothing more than a CMA (Comparative Market Analysis) which real estate agents do on almost a daily basis except that a BPO typically includes at least a couple of photos. 

There is no mystery to BPO's, a BPO does not have to be performed by a broker, any real estate licensee will do - regardless of experience or expertise.  BPO's don't pay very well either; an average fee is about $50 which isn't much considering the amount of work that must be done.  $50 is just an average, sometimes the fees run a bit higher and sometimes a bit lower.  Basically there are 2 kinds of BPO's:  Drive-By and Interior.

It is not uncommon for an agent to spend 3 or 4 hours on an interior BPO - add driving time, finding the right comps, uploading photos and completing the report form

An old adage comes to mind:  "You get what you pay for".

When a borrower is behind in payments, a first step for most lenders is to order a BPO.  Lenders rely on the BPO to report the fair market value of the mortgaged property.  In theory a BPO is expected reflect the property value in it's as-is condition as well as in the current market. 

Typical short sale offers are under fair market value.    Personally, I've never seen a short sale offer at FMV but perhaps somebody somewhere has seen this anomaly.   Most often you will find short payoffs are under FMV.

An example from an actual file:

Single family house in Port Richey, Florida - in 2005 or 2006, comparables homes sold for $125,000 to $140,000 depending on the upgrades, condition, etc.   That was then. This year, 2007, that same neighborhood suffered about a 5 to 6% decrease in home values.  The subject home, the property in foreclosure, however is in very poor condition.  The tenants stripped the house of kitchen cabinets, bathroom vanities & toilets, light fixtures, ceiling fans, the air condenser; they even took the crown molding!  Two separate contractors estimated repair costs in the $40,000 - $45,000 range (that didn't include the pool).  BPO value came in at $145,000 - this was supposed to be as-is condition!  Little wonder the $80,000 short sale offer was rejected.  The lender, EMC, countered at $120,000 and refused to order another BPO (I offered to pay for it).  This property will wind up as an REO.   This short sale died as a result of a bad BPO. 

Bad BPO's are the nemesis of Short Sale negotiators.  BPO agents can take a win-win situation and turn it in to a no-win situation just by carelessness of not doing a thorough job.  

To be fair, credit must be given to those agents that actually take the time to do a thorough BPO.   Until there is some sort of standardization to which agents performing BPO's must adhere, all of us work with foreclosures and short sales, as well as homeowners & homebuyers, will be at the mercy of sloppy BPO's.