This post is for investors who are still new to short sales, but who already have a brief introduction by reading my blog posts:

How to Invest in Short Sales

Short Sales Fundamentals

The key that turns the lock on a short sale is the BPO, or Broker’s Price Opinion. Unfortunately, the initial BPO is often both unrealistic and too high for you to make this a successful project. As a flipper, rental investor or wholesaler, what should you do once an over-sized BPO is on the desk of the lender’s property evaluator?

Lenders don’t order a full appraisal on a short sale property. Instead, they have a real estate expert give them a Broker’s Price Opinion (BPO). The broker is frequently unfamiliar with the property, perhaps also the neighborhood and the immediate local market. Depending on the lender’s process, the broker may even do all their price research electronically and never visit the property at all.

Local brokers who do visit the property in preparation for the BPO are usually not rehabbers or contractors. They look with a realtor’s eye, and while they will take note of obvious damage, they may be un-tutored about some of the less obvious, but important, defective conditions.

It is essential that you understand what is supporting the BPO – and more importantly, what is not. The BPO very probably does not include a complete review of the condition of the house, or a contractor’s evaluation of needed repairs, and may not include any consideration of the local neighborhood.

Before a short sale is on the market, as it is making its way through the lender’s paperwork process, there are “Known” numbers and “Unknown” numbers – from the lenders point of view, if not from yours.

• Lender’s Known Numbers

o How much is owed on the loan.

o How many months the homeowner is behind on payments.

• Lender’s Unknown Numbers

o The actual market value of the property in its current condition (in spite of the BPO).

o The property’s true physical condition.

o How long it will take to sell the property on the retail market, in its current condition.

Once the BPO is submitted it is almost certain to reflect a broker’s interest in a higher selling value, as it is their job to sell for as much as they can get on behalf of both the seller and their own commission.

The one thing you don’t do is give up – because unrealistic BPO’s are to be expected in a short sale negotiation. Rather, now the battle really begins.

Are you interested in pursuing short sale deals to find below-market projects? How will you handle the paperwork and the lender’s administrative process?

Short Sales: Reducing the BPO – Part 2

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