Of all the pieces in the short sale puzzle, the BPO is one of the most critical to the foreclosure investor. It will usually determine your success or failure in the negotiations. You can be the greatest at finding foreclosure and pre-foreclosure prospects. You may put together the most beautiful short sale packages in the history of the planet. However, if you do not fully understand the entire BPO process your chances for success are extremely limited.
Once a property goes into foreclosure the lender will need to assess the current value of the property. They do this so they can evaluate ways to keep their ultimate losses to a minimum. To calculate the true value of the property they will request a BPO or Brokers Price Opinion. This is generally ordered through a third party such as a Realtor or appraiser.
We all know that banks are in the business of lending money and not in the business of selling real estate. The fact that banks regulated by the government makes them sensitive to having too many none performing assets on their books. When a loan is foreclosed, the loan moves from the asset side of their ledger over too the liability side. This can limit the banks' ability to borrow money and lower its stock value.
The initial BPO usually ordered by the bank, is what is called a “Drive By” BPO. The broker literally drives by the property, takes an exterior picture and sends the bank an estimate of value. The bank uses this figure to assess its options.
Actually there are two types of BPO’s used to determine the value of the foreclosed property. One is the Exterior BPO previously described and the other is the Interior BPO.
Caveat numero uno? DO NOT NEGOTIATE A SHORT SALE ON AN EXTERIOR BPO!!!
It is fairly common for the loss mitigator to declare that the initial offer you have submitted is too low and that the BPO the lender has indicates a value much higher. You have to clarify what type of BPO was done and convince the loss mitigator that it is necessary to get a more detailed Interior BPO.
The reasoning for this is that an exterior BPO almost always come back too high and makes your offer look unreasonable. You have to explain to the loss mitigator that the exterior BPO does not reflect the true value of the property and that the lender needs to get an Interior BPO or an appraisal to get the true value.
Successfully negotiating a short sale results from being able to convince a lender to order an Interior BPO and then being able to validate that offer. If you can do this and the offer is withing the parameters set by the lender you are well on your way to getting an approval of your short sale.
More on this next time.
Yours in Success,
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