Broker Price Opinions (BPOs) - How To Get A Good Short Sale Value
April 8, 2009, Writen by: Chris Anderson, Ph.D
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Oh, the games people play, especially in the real estate business. This is especially true in the short sale world with broker price opinions (BPOs).
For those of you not familiar with the lingo, a BPO is an estimate of value, like an appraisal, but is performed by real 
estate agents. As it was put by one rather biased appraisor in an article recently,
“Unlike standard property valuations performed by licensed appraisers — which can run to hundreds of dollars — BPOs often cost $50 and are performed by real estate agents who may have minimal or no appraisal training and are subject to no regulatory oversight.”
Of course in this topsy turvey market, we have found that some very knowledgeable BPO agents have a much better handle on pricing than some appraisers but that is a different story.
As any experienced short sale investor will tell you, the BPO is the KEY TO MAKING A DEAL WORK. Essentially, a loss mitigator for a bank has certain lattitude to get deals done that are within some % of the BPO. As an example, if the BPO comes in at $150,000, then a loss mitigator may have full authority to accept offers of $130,000 or higher.
If the short sale offer is above that magic threshold, poof the deal gets done, the loss mitigator clears their desk, everybody is happy. Below that number and you may as well try pushing a wet noodle up Mount Everest. Each lending institutions have their own guidelines and these can definitely vary with time.
Many, many investors get stuck at this stage simply because they don’t understand how to play the games. So how are the pros getting BPO valuations that work for them and the bank?
- Always remember that the BPO agent is only making about $50-$75 so they want this done with little friction…. also remember that the bank is paying their bill so they want to make the bank customer happy;
- Well before the BPO agent arrives, the short sale house is marketed on MLS by the investor. They start the price at the highest value that might work and then start dropping the price some set amount (typically $5K- $10K) per week. At the higher prices, frequently no house showings occur; i.e., nobody is interested. As the price drops, you will find a price where a few showings occur and then finally a price where lots of showings occur. For a good short sale investor, their job is to explain to the bank’s BPO agent that no showings occurred until they reached a certain price….. One could argue that this is a good data point for determining true market;
- Next, the short sale investor will be very well prepared….. Lots of comps, lots of repair estimates, and any other justification that they can provide to the BPO agent. It makes the BPO agent’s job easier and helps them truly evaluate real value. A skilled investor can work magic at this stage.
- And of course, the short sale investor ALWAYS, ALWAYS meets the bank’s BPO agent on site so they can explain their point of view.
For the short sale investors who understand how to “play the game”, they get 1 out of 2 deals approved and their are some really good investors that are hitting 90% approvals.
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- State Law Regarding the Use of BPO’s (appraisalnewsonline.typepad.com)
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2 Responses to “Broker Price Opinions (BPOs) - How To Get A Good Short Sale Value”
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Good info Dr. Anderson! I’ve also found another “trick of the trade”: Since BPO’s are so inexpensive, it sometimes pays to have your own real estate agent make a BPO at the price you’re aiming for, and then show up when the bank’s agent comes to do a BPO and “play stupid” a bit, as if you thought it was your own responsibility to get the BPO. This allows the investor to introduce another BPO into the evaluation process, and gives the bank’s agent another opinion to “lean on”.
Doesn’t work all of the time, but represents a risk of only $50 or so per deal.
Bryan Ellis
Hi Chris,
I’m 65 with degrees in economics and finance (whatever that means threesdays). Trying to make sense out of what has happened in the last few year is just mind boggling. One thing I am convinced of is that short sales are going to replace foreclosures in every case possible. Banks/survicers are simply not equipted to deal with the situation. Someone is going to have to do it for them.(make it easy for them to make a decision). People are not kind to foreclosed or soon to be foreclosured houses. Wake up, Kowledge of renovation lending puts everyone involved in a short sale effort at a HUGH advantage.
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