BiggerPockets

4 Tips to Influencing the BPO (Broker Price Opinion) on Your Short Sale

Thursday, March 11

Simply put, the Broker Price Opinion, or BPO, is an valuation or estimation of a property completed by a real estate broker or other licensed individual. The BPO is a “middle of the road” appraisal; and is more thorough than the AVM (Automated Value Model), a system that calculates a value in minutes with no property visit based on historical price, market conditions, and comparables; but not as thorough as an full-blown appraisal done by a licensed and certified appraiser (which can cost twice as much).

For the short sale agent or real estate agent, a BPO is typically ordered by the bank or lender when considering a short sale offer. The BPO value provided by the agent that is a result of the BPO inspection is typically used by the bank to compare against the short sale offer that was made to see if the offer is reasonable. The BPO does not necessarily need to come in lower than the offer being made; but if there is a big gap between the BPO value and the Short Sale offer, the bank or lender will be more likely to question the deal and its validity.

Here’s the kicker: a BPO, like any other appraisal, is still subjective. After all, it is called a broker price opinion. Like anything else in real estate, when it comes to estimating, there is no real “number” for a property, the best there is is a reasonable range. Ultimately a house will only sell for what someone will pay for it, and while we can estimate what that might be all day long, it’s just not possible to know it to the dollar.

The problem with the BPO for the short sale professional is that, as an investor or agent trying to gain short sale approval from the lender, you want the BPO to come in as low as possible (and, of course, still be an accurate number – any lying or shell games here is grounds for serious legal consequences!). Meanwhile, the lender wants the BPO value to come in as high as possible. Since the lender is the one doing the ordering of the BPO here, you can see how the broker will typically work along that “range” in the lenders favor.

There are really two types of BPO’s ordered by lenders, Full and Drive-By. We recommend always pressing for a full (inside & out) BPO. Since we are attempting a short sale on the property, and the owners are having difficulty meeting their financial obligations, it’s very likely the inside of the property is suffering from at least some neglect or damage. Remember, you want the BPO to come in as low as possible; so seeing interior damage is important for the broker to really understand the true nature and magnitude of the repairs that must be done. Also, having the broker visit the property directly will let you meet him or her; which we will talk more about below.

So, what is the broker actually going to actually do to complete the BPO?

1. Pull comparables
2. Take photos of the property and the surrounding area
3. Estimate repair costs
4. Form their opinion of the properties value in the market
5. Write it all up on a short report and send it to the lender

That end result – the opinion – can make a huge difference in your deals. If the BPO value is $100,000; and the lender is able to take 90% of BPO value, your net offer will have to be $90,000 or higher. If the BPO value is $120,000; now your net offer will have to be $108,000. A high BPO can and routinely does kill deals. You can sometimes get the bank to order a second (or even a third!) BPO, but your goal should be to get the BPO at a value that supports your short sale offer, the first time out.

So; with that said, how can you (legally!) impact or influence the BPO value?

1. Be Prepared! The broker will pull their own comparables, and so should you. Remember, everything is subjective. Bring properties and values with you that you think best represent the value of the listing, and share those with the broker. Create your own repair estimates, as well, so you can compare notes with the broker. Your repair estimates should include both the more cosmetic items (like peeling paint and damaged counter tops) as well as the more serious issues (like foundation cracks or a leaky roof).
2. Show up! Not everyone will recommend this, especially Virtual Investors, because it takes time, but you really should show up, especially if the location is nearby. Also, if you do a lot of business, it will help to develop a relationship with the broker doing the BPO. Don’t be a pain in the ass, but do pay attention to what they are noting! Make sure the broker themselves come to the property (some brokers will unethically send in surrogates for a cut of the lender payment) – and make sure the borrower is NOT home! To control the situation to the best of your ability, you should be the one there answering questions. We shouldn’t have to mention this, but you are a professional, so act like one – dress appropriately and bring a business card along.
3. Keep the property as-is, no fix-ups! You want the house to accurately reflect the condition it is in. This isn’t an open house; you don’t need light scented candles in each room, dim the lights, put on opera music and place silk Ficus plants in the foyer. If there is damage, point it out. If the broker missed something, make a note of it, especially in areas that they might not look (like the attic or the basement).
4. Follow Up and Close Strong! When the broker finishes their walk through, you should compare your notes. Ask them if they have an initial ballpark estimate. Many BPO agents will give high values – if these aren’t reasonable, now is the time to speak up. Make sure you mention crime statistics and other neighborhood items if they forgot. You can even give her your suggested property value. Remember, this is your last opportunity to mention anything they missed, so make sure you take advantage of it! Whatever you do, do not be overbearing! Like everything else in the short sale process, you need to be honest with your property, but ethical as well. Being reasonable with the broker will earn you respect.

So, there you have it. The BPO process and how you can help influence the outcome in a nutshell. Any stories on what you have done to handle a BPO? Any horror stories? We’d love to hear them in the comments!

Looking for Short Sale Software? Visit Short Sale Artisan today!

Comments

1. 

   Ted Akers Reply
   almost 2 years ago

   Good detailed post.

2. 

   Tod Radford Reply
   almost 2 years ago

   Nick. Excellent blog. You are truly a SS Artisan!

3. 

   Nick Reuter Reply
   almost 2 years ago

   Thanks Tod & Ted :) Appreciate the positive feedback!

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