Magic BPO Success Secrets. Cory Ph.D Boatright
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to be able to best position yourself to positively and ethically influence the BPO value.
The bank is pretty lazy when it comes to ordering BPO’s. In fact, about half of the time the bank will hire a BPO agent to go out and give a quick CMA of the property, but occasionally they will hire an appraiser to give a full blown appraisal. The key is to communicate with the BPO agent and convince them to turn CMA in at a lower value. Negotiation is imperative to short sales, but if the BPO comes in high then your negotiation skills won't mean much. Influencing the BPO is essential. How you prepare for the meeting and communicate to the appraiser is crucial. If you understand this next part you will be ahead of the BPO “game”.
You can’t forget that you are an investor looking to purchase a property for a deeply reduced selling price. You must be able to flip the property for a profit, and to do that, you need the BPO to come in LOW. If the value is set at $200,000, and the bank is using a 82% ratio, then your offer of $140,000 isn't going to get you anywhere. A lower rate is crucial to you as an investor. However, if they turned in a value of $150,000, then you could be looking at having them accept an offer of only $123,000 as full payment. Now that is a short sale you want to buy and hold or flip for a fast profit! You are beginning to understand that is really doesn’t matter what the value of the house is worth as much as it matters how much the BANK THINKS the property is worth, Kapee’sh?
Short sales can take a long time to get a bank to approve them. In fact, the short sale can take three to four months to work out and there are often no clues as to whether or not you will get your offer accepted by them. If you skip a step, are unable to communicate with the BPO by saying or doing the wrong thing, then all your hard work will be for naught. It won't matter how prepared you were or how many hours you put in. Now let’s discuss some of the “nuts and bolts” on figuring out the lenders BPO value on file.
Figuring out the Lenders BPO
To Review, the BPO (Broker Price Opinion) is the single greatest value factor the lender will use to determine the acceptance of your short sale offer. A BPO is a generalized opinion or value of a property the lender uses to determine what the property is worth. It is ordered by the lender and then sent to a third party company, such as BPO Direct, First America, LandSafe, etc.
These companies have a list of Realtors for each state that work for them. BPO's are ordered and conducted by Realtors. The BPO can be an Interior Type or Exterior Type. If an Exterior Type BPO is conducted it means the Realtor (BPO agent) did NOT go inside the property to evaluate its condition. This could be due to the homeowner vacating the house or not being cooperative with the BPO agent when requesting a time to come inspect the house. Let's look at the different types of properties and how they are affected by the BPO.
What is The House Type and How Does It Affect the BPO?
If you cannot JUSTIFY a reason for the lender to accept a large discount (no supported sold comps anywhere near your offer price, no repairs needed, houses has equity, house is in a great neighborhood and houses are selling fast there, etc.) don't expect the lender to give you one. This also dispels the myth that all houses heading towards foreclosure are good short sale candidates. They are not.
Here are some classifications and examples to make it easier to determine how much of a loss the lender may agree to accept.
Cory’s Short Sale Classifications
* PRETTY HOUSE
* UGLY HOUSE
*SCARY HOUSE
Examples
*Pretty House: (Generally in safe, desirable areas and houses selling fairly quickly)
ARV1FMV: $100,000
REPAIRS: $5-10,000 (5-10%)
BPO: $80-90,000 +15%
*Ugly House: (Generally a light rehab or fixer-upper, handyman special house in fair neighborhoods)
ARV1FMV: $100,000 (With Ugly Houses this number tends to be the “as is“ value instead of ARV.)
REPAIRS: $11-20,000 (11-20%)
BPO: $80,000 +15%
* Scary House: (Generally in areas that are not desirable, massive repairs needed, lots of crime isn't uncommon)
ARV1FMV: $100,000 (With Scary Houses this value tends to be the “as is“ value instead of ARV.)
REPAIRS: $35,000 (21 - 35% +)
BPO: $65,000 +15-10%
You can have a Scary House located in a great, fast selling neighborhood and combination of the others, but generally speaking Scary and Ugly Houses will not be located in excellent neighborhoods. Remember this is a guideline, not an exact science. The BPO agent will generally consider the “as is“ value for both Ugly and Scary Houses.
Now let's discuss the different loan types the lenders will consider a factor per short sale submission.
Learning the Loan Types How the BPO Value is Determined from Each One
Here is the “skinny“ on the different loans types and how they affect your short sale. When you learn these, you can increase your closing rate for lender accepting your short sale by as much as 50%! Here's why. When you know more about any property it provides you better leveraging and ultimately negotiation strategies to target. Not all short sales are created equal.
Here’s why:
* Conventional loans These loans are found all over the place. They provide the most flexibility especially dealing with short sales. Using the $100,000 example, you might start out your offer submitting 60% x 100,000 (FMV) = $60,000... The $60,000 is actually 70% of the BPO Price. However it is very common to see the lender accepting around 80-85% of the BPO price, which would be around $68,000 - $72,250.
This model can fluctuate a little bit, but this is a common average. The BPO (value opinion also considered the PERCEIVED value of the property) to the lender is the MAIN VALUE FACTOR. Therefore in this example if you thought the BPO was going to come in around $65,000 ... You would take 82% of THAT number, which would be $53,300. The lender may very well accept $53,300 based on their perception of the value of the property.
* FHA loan: This isn’t a scientific grading scale. It should only be used as a guideline. You can and will
have other factors that make you stray from this. If you are dealing with an FHA type loan or any government backed loan, they are going to recoup a set amount if the foreclosure is completed. For example with FHA loans, the insurer will basically guarantee the lender *82% of an FHA Certified Appraisal amount. Notice I did NOT write BPO amount. For these loan types you will need an FHA Certified Appraisal for the lender to consider in their evaluation process on the property. The BPO will not suffice on these types of loans. You can massage the numbers 1-2%, but *82% is listed in their guidelines.
*Note: The percentages are updated guidelines as of 1/15/09:
FHA requests:
Net 88% first 30 days a property is listed Net 86% for a property listed 31 - 60 days Net 84% for a property listed 61 - 90 days.
•All FHA loans are insured by the federal government.