Realtor Tip 7: Understanding the BPO Process

In the current housing market, banks more than ever are willing to negotiate a short sale. Even so, they continue to want to minimize their losses as much as possible. A lender involved in a short sale will request a Broker’s Price Opinion, or BPO, to have a third party validate the value of the house, similar to having an appraisal done. The overall purpose of the BPO is to make sure that the bank is getting as much value on the house as possible in the short sale process. As the selling agent, understanding the BPO process can help you know what information to provide the BPO agent and better prepare for the negotiation with the bank.

Most BPO agents are real estate agents that take on this responsibility for additional income from the bank. Since they are active real estate agents, the majority of BPO agents generally are very good at assessing what is right and what is wrong with a property and reaching an accurate conclusion. Some, however, are not. As the short sale agent, it is imperative that you are proactive in your communication with the BPO agent throughout the process.

Determining the BPO
In putting together a Broker’s Price Opinion, the agent typically will look at the values of similar houses in the subdivision, as well as the condition of the house to account for any things that could devalue it (e.g., structural damage, crimes or foreclosures in the neighborhood, etc.). The level of detail, however, can vary significantly.

As short sale agents, we generally see two kinds of BPOs. The first is the drive-by, where the BPO agent literally drives by the house, looks at the exterior, and makes an evaluation based on the appearance of the neighborhood and front façade of the house. The other kind is an interior BPO, where the agent makes an appointment to evaluate the inside of the house as well as the exterior. Obviously, the interior BPO is more extensive and more accurate, because the front of the house could look great but the inside could be totally ruined (e.g., broken A/C, stained carpets, holes in the walls, etc.). Insist on an interior BPO with the bank if you know there are issues inside the house.

How a BPO Can Affect a Short Sale
An accurate BPO is critical to the short sale process, because the bank will take as gospel whatever number is provided in the Broker’s Price Opinion. If the BPO comes back with an inflated value, it can slow the short sale process significantly. For example, we had one BPO come back at $100,000 more than the offers we received on the house. The agent obviously did not understand that particular house, the market, and the situation. With an FHA loan that is being shorted, once the BPO price is set and the bank has taken it on as the real value, HUD uses that value for 120 days. In the case where the BPO was off by $100,000, the bank had to stick with that number for 120 days. Not surprisingly, the house sat there for several months unsold, because the BPO agent valued it too high.

Of course, if the BPO comes back with a price that’s too low, the short sale is easy, but in the majority of cases the price is too high. As the selling agent, you cannot directly influence the BPO outcome, but you can provide information about the house and the neighborhood to inform the report and help the BPO reach an accurate conclusion. We will discuss how to accomplish this in an upcoming article.

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