Brian Meara explains today what a BPO is and how critical it is to meet the BPO Agent with useful documents in hand.
Spending time in preparation to meet with the BPO Agent at the house can help make the deal be successful. Learn what you need to bring so that the appraisal can have a result in your favor.
Mike: Welcome back to the FlipNerd.com REI classroom where experts in the real estate business teach you quick lessons to take your business the next level. And now, let’s meet today’s expert host.
Brian: Hey, guys, Brian Meara here again with the Investor Entourage, bringing you another topic. Today we’re going to talk about handling the BPO appointment.
Mike: This REI Classroom real estate lesson sponsored by VirtualStaffNow.com.
Brian: Okay, guys, let’s start off, first of all, with what BPO is. Specifically, we’re talking about short sales. And when a bank gets an offer or sometimes even before, they want to get an idea of the value of the house. So you would think, “Well, they’re going to order an appraisal.”
Right, get an appraisal pay appraiser. Well, that would be nice and in certain circumstances, they do. Specifically with an FHA loan and VA loan, it’s always going to be an appraisal. You can know that write that down. But the other times, they’re a little bit cheap and they try to save some money. So they’re not going to pay for an appraisal. They’re going to pay for a mini appraisal. Well, they don’t call it a mini appraisal. They call it a BPO, which stands for broker’s price opinion. Well, a broker, yeah, as in a real estate agent; not even a broker.
They hire a real estate agent, they contract with them, normally pay them about $50 just to drive by and take some pictures, which is called an exterior BPO. An interior BPO is where they actually go into the house and take pictures and look around. And they want to see the condition of the house.
They put together a little bit of a report, they run some comps, which stands for comparable sales, comparing again, like verses like, they put their little report together, they send it to the bank and I think, the last I heard, $100 for an interior BPO. Well, considering the average appraisal is around $300 to $400, you could see with the number of homes that are going into default and being in a distress situation, at the end of the day, it does save them a lot of money getting these BPOs.
Now, that being said, if you’re an investor, if you’re a realtor, doesn’t matter what side of the venture you’re on, you need to prepare for the bank’s BPO appointment. Because we have a saying internally, which is that the deal lives or dies with the BPO. Why? Because if the value comes in inaccurately too high, guys, you’re not going to be able to sell the house.
If you’re a realtor, first of all, let’s just call it what it is. Everybody knows that you can get a discount on short sales. That’s why people go after them. They also it takes time and you have to fight with the bank. So at the end of the day, the bank is willing to give a discount, but they’re going to discount from what they believe the value is.
How do they know what the value is? If you have some negotiators sitting in a cubicle in Los Angeles managing this loan for a house that it’s in New Jersey, the only thing they can go on is a BPO report that was sent literally from across the country. And the only thing they care about, for the most part, is the value. How much is it worth, how much does the local area professional, the local area expert, say that this property is worth? If it comes in too high, even if they discount, generally you’re out of luck because the buyer probably won’t want to come up to that price. Most buyers come in with their best, especially on a short sale, and they’re not going to raise their offer to meet what the bank wants. They’ll just move on to the next one.
That’s why you see so many houses or so many short sales getting turned over and we hear, “Oh, the buyer walked. The buyer walked.” What happened? Well, the BPO wasn’t handled properly, the bank wouldn’t accept the offer, they countered a little bit too high and they said, “No, we’ll move on to the next one.” And if you’re an investor, it’s even worse because you’re not going to make any money.
How do you address this? How you handle a BPO appointment? It’s real simple, You simply provide factual data. If you are the listing agent, and we highly recommend that for every BPO appointment and/or appraisal, the listing agent physically meets the BPO agent or appraiser at the house 100% of the time, no questions asked, no exceptions. You have to get in your car, drive to that property, get out of your car and physically meet this person and have a conversation with them.
This is not manipulating the value. This is not doing anything illegal. This is not doing anything in the gray area. This is doing your job. Because if it’s your listing and you’re the agent waiting to get paid, this is something that’s going to help your client move the housing and avoid foreclosure. If you’re an investor, you need to make sure the agent is that because if the deal doesn’t go through, nobody is getting paid.
What do they do when they get there? They just tell a story, guys. They tell a story. Specifically write this down. We want them to bring the three lowest comps comparable, real comparable sales of like verses like, of homes that sold in that area going back six months in time and out one mile.
We want a professional contractor’s repair estimate. Have the contractor go through there and write up an estimate. Most of them do that for free, by the way, because they’re hoping to get to the work. We also want a copy of the hardship letter. That’s the letter that homeowner in trouble, the seller in distress writes, explaining how they got into trouble and why they can’t pay the mortgage anymore.
Finally, we want a copy of the contract, a copy of the investor, in this case, or even the buyer’s contract. Why? Because you’re going to have a nice little package, a nice little folder here with all the supporting documents that you can give to the BPO agent or appraiser and say, “Look, here is the offer that we have. Here are some comparable sales and comps and how this guy came up with this offer. Oh, and by the way, here’s a repair estimate showing the work that needs to be done to the property and also explaining why the offer came and where it did. And finally, here’s a copy of the hardship letter explaining this is a short sale and someone, God forbid, got cancer, this is a divorce situation.”
Because remember, we’re human beings and the more we can relate and interact with each other as human beings, there’s a better chance they’re going to actually listen to the story, take this into consideration and your value’s going to come out better so that the deal can close. Everybody wins and you can move on to your next deal. So until the next time, guys, we’ll talk to you soon.
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