In a recent article in the Washington Post, Ken Harney suggests that real estate agents are low balling BPOs to get listings. I won't even address this since the thought of a BPO agent getting a listing from a BPO is pretty silly. There ARE agents who have gotten listings from their BPOs but it was based on how professional and accurate they were and not usually based on them doing something to make the asset manager look like a hero.
In response, Kevin McGrath on Active Rain explains that low ball BPOs are exposed quickly, countering the notion that:
Online, BPOs are hawked to real estate agents as a route to quick profits in a downturn. "This is the easiest and fastest way to make big money in 2009," says one Web site that promises agents "six figures or more" a year. The same site suggests that "bad times put you in the ideal spot" to rack up income by churning out BPOs for lenders.
I'm here to continue the argument. I think low ball BPOs are just what the country needs! In fact, I think that supposed low ball BPOs are saving our economy.
To understand my position, you first have to understand the short sale process and market conditions.
Let's start with the short sale process.
The cliff notes versions is this:
- Home Owner is Upside Down
- Home Owner contacts bank and finds out they don't care unless they are behind on their mortgage
- Home Owner puts home on the market
- Home Owner has had home on the market for 3 months and decides they might need a short sale agent.
- Agent explains that they need an offer, any offer will do a this point.
- Offer presented is on the verge of being called ridiculous, offer is submitted to the bank.
- Bank takes the offer and evaluates it.
- Time Passes
- More Time Passes
- Bank assigns a negotiator
- Time Passes
- More Time Passes
- Bank orders a BPO
- BPO comes in..... and from here the bank bases all of their decisions to counter or except or reject.
If the BPO comes in too high?
The offer is rejected, the bank forecloses. Through the process the bank loses additional money but here is where the market comes into play. Since this is a declining market, the home is worth LESS than it was when it hit the market now 6 to 9 months ago. The home may be worth 10% less in some cases maybe more.
However, the BPO agent reads the washington post and has decided to be a hero for the community and over evaluated this home. Surely, this will protect home values!
So now the bank is forced to foreclose and assign this to an agent who couldn't be more removed from the active market if they tried. The agent gets the foreclosure on the market with one photo.
Now the bank has to reduce the price in order to sell the home. In most cases, foreclosure will sell for far less than a short sale would have 6 months prior. Why? When price is the only thing selling the home, and the market is declining and dealing with your bank has become more inconvenient than buying from a regular owner, YOU HAVE TO DISCOUNT IT! (pardon the stream of conscientiousness here).
So the next time you do your BPO, don't low ball, give a true MARKET EVALUATION. This is something that appraisers are NOT trained to do. BPOs SHOULD take into account the market. SO in fact a "low ball" BPO might actually be reality, if you take into account HOW LONG the bank takes!
If you would like to contact Ken Harney about how wrong he is, please do at: KenHarney@earthlink.net.