What's the *#&@%$ Problem with BPO's?
Seriously? Sometimes I wonder if the people doing BPO's even know how to work the MLS!!! (well, a lot of them don't, but we'll talk about that in a second!)
Let's start by going over why the BPO is so critical in your short sale deal, and I don't care whether you represent the Buyer or the Seller, this is good info to know. The 2 agents in these deals really should work together to get these short sale deals closed because we all know it is the best option for our market, our seller, and our buyer. Actually, maybe you don't know that, so I'll cover that next week! But for now, just go with me! The BPO is this magical figure that your ENTIRE deal is based around. The loss mitigator calculates ALL of their formulas around the BPO value and will approve or deny your offer based on it. Most lenders have a set percentage of the BPO value that they are allowed to take, and anything under that will have to go to a different approval process.
For example, if the BPO comes in at $100,000 and the lender is authorized to take 85% of BPO value, then as long as your NET offer is over $85,000, you will be approved! That also means that if the person that does the BPO brings it in at $120,000, the offer would need to be at least $102,000. See the difference that the BPO makes to a deal?
Now here's the problem with the entire BPO system boiled down to a simple statement:
You want the BPO to come in LOW and the Lender wants it to come in HIGH!
Now do you see the problem? The lender hires the person that does the BPO. The person that does the BPO has a carrot dangled in front of them that if they bring it in nice and high to make the lender think they can get more money for the house than the short sale offer is for, maybe they'll get the listing when it's an REO! Back in the 90's when I was a brand new licensee and new NOTHING, my broker came to me and said "do you want to do this BPO for me? You just pull some comps, drive over and take a picture, and they'll pay you $75 and bring it in nice and high and sometimes you'll get the listing after it forecloses!" ....... Woo-Hooo! $75 bucks! I'm IN! (see the problem?)
Let's go over some of the challenges with the current BPO system:
1. BPO stands for BROKER PRICE OPINION, so maybe it should be done by a broker?!?! Or under the direct supervision of a broker, by a licensed agent, and signed off by the broker, kind of like how appraisers do it when they need a second signature. Last year I met an "agent" at one of my listings for a BPO and found out that the agent didn't even come out himself...he sent an out-of-work roofer to the property to take pictures and inspect the property! There are several problems with this: first, I'm sure the lender didn't know that it was an unlicensed person doing their work for them, second, if I hadn't met him there, he probably was using the agents MLS key (which probably violates some rule somewhere!), and third (in this particular case) the home was a nice 2-story block home in a neighborhood of small frame homes and mobile homes. Now any AGENT knows that this affects the value, but an out-of-work roofer who just comes in, takes pictures, and leaves, doesn't understand this (and since the pictures look ok, the agent doing the BPO report would bring the value in too high). Luckily, I always attend my BPO's so I can counteract things like this and I gave him a 5 minute lecture about how the value is lower because of the neighborhood and I made him drive through the neighborhood as he left to see it in all of its glory!
2. They don't pay $75 any more! They expect the agent to do all of this work, drive to the property, take all of the photos, spend hours doing the back research to come up with a valid value? Yeah, Right! To survive on $40-50 per report, you have to do a TON of them, which means you do them as quick as you can and you're not as diligent on coming up with a real value. There's a reason appraisers charge $300+ for an appraisal...they're a lot of work!
3. If it's a Fannie Mae loan, they're not supposed to use BPO's anyway! The Fannie Mae Seller Servicer Guide states that they're supposed to have an APPRAISAL done!
4. BPO Agents seem to live on another planet when it comes to values! I'm fighting with one right now that's come in at a $280,000 BPO when I've had 3 of the exact same floorplan in the same subdivision that I've had listed for over 6 months WELL below the $280 mark (last listing price was $239,900, and of course most properties are under contract less than list price!) Here's the first thought that comes to Bad Andy's mind: IF IT WAS WORTH 280, I WOULD HAVE SOLD IT FOR 280, AND IF YOU THAT AGENT THINKS IT IS WORTH 280 THEN I WILL GLADLY GIVE THEM THE LISTING...LET'S SEE HOW THEY DO WITH IT!
So Please, Please, Please, if you are doing BPO's, please, realize that you hold the entire deal in your hands. If it's been listed for a certain price for several months, it's probably NOT worth more than that!
Next week I'll tell you why short sales are better for our seller, our buyer, us, and the market as a whole!
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