A Quick Lesson in Broker's Price Opinion (BPO)

A Quick BPO Lesson

The BPO (Broker’s Price Opinion) is the most pivotal element of the short sale, since the lender’s valuation of the property is determined by this appraisal.

Whatever value is provided to the lender from the BPO will be the number from which they will decide what they will sell the property for. Consequently, the agent or appraiser that performs this valuation has the future of your deal in his or her hands!

Having knowledge about how the process works can be the difference between a closing and a lot of work for nothing. Here’s a brief description of the process and some tips to make it successful:

You will receive a phone call from the agent or appraiser who has been contacted to do the BPO on your listing. Please be as responsive as possible and return the phone call as soon as you can. Be polite, respectful, and friendly to this person, and accommodate their request for an appointment in a timely manner.

Normally, they will have a specific date and time by which the BPO needs to be back with the lender, and if this is not met, the appraisal could be assigned to another BPO agent, or worse, the file could be closed.

You need to attend the BPO! The BPO agent will not request for you to be there, but he or she needs to gain access to the property, so let them know that you are the only one that can get them in. They may be real estate agents with access to RMLS lockboxes, so assure them that you are the only one with access to the property.

It is imperative that they meet with you at the property so that you can properly advocate for your seller. Otherwise, they will not learn the background of the situation, the distressed nature of the property, have the right comps, or know the repairs required. You must provide this data and information, so have low comps, a contractor’s repair bid, and a smile when you arrive at this appointment!

Be at least 15 minutes early to the appointment, since BPO agents often arrive early to do outside measurements of the home. Being prompt is respectful and gives everyone the opportunity to do their job and then move on to the next order of business.

Befriend the BPO agent, provide them with your data, and let them know that it is a short sale. As well, tell them the offer price currently on the home. BPO agents will come in all personality types, so do your best to read your audience and let them know about the sad situation the seller is in.

Don’t be pushy or aggressive, just be a helpful person with information that helps the seller and yourself get a favorable valuation of the home. Building relationships with these agents is crucial, since you may see each other again and again, and you will want to work well together for positive results.

Short Sales: Frequently Asked Questions (FAQ)

1) "What should I do if I cannot find the homeowner after listing the property?"

You will need the FULL cooperation of the homeowner(s) to successfully negotiate the closing. In the event the homeowner(s) is unavailable or uncooperative, you may want to consider releasing the listing. This should be at your discretion and your broker’s.


2) "Can the seller just sign a Deed in Lieu (DIL)?"

The requirements for a DIL are similar to the short sale requirements and need much of the same documentation.

• In general, the lender will not accept a DIL on an investment property
• The property must be listed at least 90 days with no offers
• Clear Title/No second lien hold or other liens
• Full financial package (same as the short sale package)
• Foreclosure sale date cannot be within 30 days or request


3) "How long does it take to get a short sale closed?"

The lenders have asked us to give them 3-4 weeks after submitting the offer with the short sale package to make contact. Once submitted, the lender will contact my team (Short Sale Connections) for access to the property. A member of my team will notify you when we receive this call. The BPO takes 2-3 weeks to be returned to the lender and reconciled. Once the BPO has been returned and reconciled, please allow another 2-3 weeks for the lender to review the offer.

The industry standard, at this time (Q1 2009), is 60-90 days total.


4) "How is the seller’s credit affected?"

Completion of a short sale may appear on the Sellers/Borrowers credit report as: Settled, paid, short sale, or offer and compromise.


5) "What is a short sale?"

A short sale is a real estate transaction in which the lender allows a property to be sold for less than the amount owned on a mortgage and takes a loss.


6) "What is the difference between a foreclosure and a short sale?"

The negative impact for a foreclosure on a credit report is greater than the impact of a short sale. If the homeowner lets the property be foreclosed on they can be subject to a deficiency judgment. Generally, if the short sale is approved, the lender will not pursue a deficiency, although my team cannot guarantee that the lender will not pursue a deficiency.


7) "What are the tax implications on a short sale or foreclosure?"

Both can be a taxable event. This topic is currently subject to new legislation and therefore the homeowner should consult their tax professional for the most current, accurate information.


8) "Why can’t I call the lenders directly?"

We have our own contacts with the lenders, and to have more than one contact person on a file can further delay the process. It can also greatly anger any representatives of the lenders as they don’t have the time to relay the same information to multiple individuals.


9) "Can I send in a “Low Ball Offer” and have the lender counter?"

Unrealistic offers will be rejected quickly. Even worse and more likely, due to the outstanding work load that the lenders have, the offer will be ignored since the lender will feel that the buyers are not serious buyers and the negotiator will not respond at all for weeks or months. The lenders do not have the time or the man power in this market for “fishing expeditions” from the buyers.


10) "Why does OHS request up to 48 hours to return calls or emails regarding status updates?"

Each of our negotiators has up to 350 files at any given time. We request that we are given this time so that we can meet the needs of all agents on all of the files that we work on.


11) "Why do short sales take so long?"

A short sale requires the lender to review the homeowner’s financials in order to determine if the homeowner has the ability to pay any or all of the debt, similar to a buyer qualifying for a loan in reverse. The lender must determine the value of the property and weigh that against the amount owed. They compare what they think they would net from a foreclosure sale to the net proceeds of a short sale. The amount paid to the lenders is not always the determining factor. Sometimes an uncooperative second lien holder will cause the senior lien holder to foreclose just to clear the title.


12) "Why do lenders foreclose?"

Lenders are corporations driven to make money. They must answer to their shareholders just like any other company. These corporations do not want to own property. The only reason they foreclose is to gain control of the property or asset and recover as much of the principal loan balance, accrued interest, late fees, penalties, taxes they paid on behalf of the homeowner, as well as court costs and attorney fees. In most states, the laws are written so that the lender can only recover these widely accepted losses.


13) "Why does Your Team (Short Sales Connections, or more specifically: Oregon Home Savers, LLC) charge a fee?"

This fee is to pay for the services of a full time staff of negotiators. The seller has agreed to use its services. Oregon Home Savers, LLC is not a real estate company and does not engage in any professional real estate activities, e.g., the marketing or sale of the property, and solely works with the seller’s lender(s) with respect to outstanding encumbrances against the property. This is a professional short sale company that has one of the highest closing ratios of short sales in the industry. It has excellent personal relationships with lenders, and a wealth of experience in this field. Agents around the country use the services of OHS to get deals done that they otherwise would not have accomplished on their own.


14) "How is this fee paid?"

The buyer pays this fee and it is identified on the purchase and sale agreement. In the past, agents have done it one of two ways: They have asked for $3,999.00 from the seller to cover the cost, or they have lowered their offer by that amount, understanding that their buyer will pay the fee. Under no circumstances will my team agree to share in any agents’ fees in lieu of the Consultant Fee.


15) "How should I write that into the Earnest Money Agreement?"

If you are asking for the seller to pay the fee, on Page 1, Line 39, after describing the loan or payment option, include “Seller to pay $3999.00 in buyer’s closing costs.” And, in every case, on Page 2, Line 55, under Additional Provisions, include “Buyer to pay $3,999.00 to Oregon Home Saver, LLC.” If your buyers are obtaining an FHA loan please contact my team to discuss how the fee will be paid.


16) "If we do not close the transaction on this property, will my buyer be charged the fee?"

Absolutely not.


17) "How long will it take to obtain lender approval?"

This varies greatly according to each specific case. Each seller’s financial situation is different, and some are more complicated than others. A general estimate from the time you submit your offer would be 30-90 days to receive a response, either acceptance or counter, from the lenders. If your offer is not accepted by the lender, they generally do not provide a written response. Make sure your buyer understands this timeline so that everyone has reasonable expectations.


18) "Can more than one offer be submitted to the lenders?"

Frequently, multiple offers will be obtained on a short sale. Listings are kept Active in RMLS until there is written lender acceptance of an offer. Lenders will not provide a written rejection to your offer, only a verbal rejection. A written response is provided only in the case that your offer has been accepted.


19) "What are the steps in negotiating the short sale?"

It's illustrated here.

An offer is presented to the lender, and generally in the next 2-4 weeks a loss mitigation representative is assigned to the file. A BPO (Broker’s Price Opinion) is ordered by the rep. Once the BPO is completed, it normally takes 14-21 days for that to appear in the lender’s system.

If there is more than one lender, there may be more than one BPO, and sometimes more than one per lender. Once the loss mitigation rep has reviewed the completed file and done his/her’s due diligence, the lender will make a decision on that offer. This process needs to take place at each lender in order for them to make a final decision.


20) "There is an auction date next week, is the property being foreclosed on? What’s happening to our offer?"

Most short sales have auction dates, and if in the middle of negotiating the short sale, the auction date arrives, my team will make every attempt to postpone the auction while negotiations continue. Most lenders wait until the last minute to postpone auction dates, and this is very normal and typical. However, there is no guarantee that a lender will postpone the foreclosure sale, and my team does not warrant that a foreclosure sale will be postponed.

Whew!


Nick

Who's Who in the Short Sale Process

Just so you understand the players:


The Role of the Agent
The Real Estate Agent will act in accordance with the rules and regulations imposed on them through the Division of Real Estate and Board of Realtors in their area. The Agent/Broker is the one who contracts with the homeowner and requests all documents from the homeowner.

The Agent/Broker has the same fiduciary duty to the Seller/Buyer they would have with any other listing or transaction.

The Agent/Broker is responsible for meeting the appraiser or BPO agent.

It is the responsibility of the Real Estate Agent to advise the Seller to accept, counter or reject all offers presented on the property. All offers do not have to be presented to the lender. My team will then engage in the negotiation with the lenders.

Please provide the complete package as soon as possible to my team.

The agent is responsible for all communication with the buyer’s agents. Please DO NOT give other agent’s any contact information for my team, which includes phone numbers or email address without my team's expressed permission from my employees.

We do one thing, and we do it really, really well. The main focus of my team is to be constantly available to the lenders when they call without notice. If we miss a phone call from a lender to work on a file due to a call checking status, your file may be delayed by weeks. Note: my team, and their employees are not Real Estate Transaction Coordinators.



The Role of the Area Manager
The Area Manager has a general understanding of the Real Estate rules and regulations and specifically with short sale and modifications. He/She will work hand in hand with you to provide updates and to keep you aware of what stage of the process your file is currently in.

He/She will also notify you if the lender requests any updates as well as when the lender(s) make a decision on your file. He/She is the main point of contact for agents, though please allow for a 48 hour reply time in your request for updates. The Area Manager confirms that your package is complete, submits the initial package to the lender, and he is the person that you need to provide your entire complete package to.




The Role of the Loss Mitigation Department
The role of our most important department is to work with the lien holders to approve the short sale. This department calls on each and every file every few days to check for updates and to make sure that your file has not been placed at the bottom of the lender’s huge pile.


The Role of the Lender
The sole function of the lender in a short sale is to determine the amount that they will accept from the homeowner as a payoff on the loan or note secured by the subject property.

The homeowner must receive written approval of the lender’s order to deliver clear title on the contract they executed with the buyer.

The lender has no other authority or responsibility. They do not sign the listing or any other paperwork as the seller. They do not determine the listing price, except as to provide a minimum amount they are willing to accept in regard to the loan amount.

They do not make repairs or authorize repairs prior to closing. They will secure the property in order to protect the property from further deterioration through the foreclosure process.



Nick.

The Short Sale Process: The Demand / Approval Letter(s) / Closing

Once all approvals have been received from all lien holders, my team will review all approvals and submit them to escrow and agents. The approval letters will have an expiration deadline that the file must fund by. When you receive the approvals, please order the inspection (if buyers did not waive inspection) and appraisal.

Once the lenders issue the approvals there can be no changes to the HUD, or the lenders ALL have to re-approve the new numbers and issue a new approval. This is also true for a change in buyers. Expect further delays if either the numbers on the HUD change, or if the buyers decide not to proceed with the short sale.


The escrow officer will schedule a time for signing after the buyer’s loan documents have been received. Signings need to occur no later than 3 business days prior to the approval expiration date to allow enough time for the lenders to receive the final HUD and accept the wire.



Nick.

The Short Sale Process: Negotiation

You know? I might just come back and create an illustration for this, just so you can better understand what happens.

Once the appraisal or the interior BPO is returned and reconciled with the lender, there is a 2-3 week review period that the lender will need to process the short sale package and review the offer. After the review period ends, there are three possible outcomes:

1) The lender approves the offer and issues approval letter(s) within a 1 week period.

2) The lender declines the offer, as they feel the offer is too low for the true market value and counters your offer to a higher offer.

If this happens the lender will give you a time frame to reply by (normally within 2-4 business days). Please respond quickly or lender may close the file and then file will need to be reassigned to a new negotiator, which delays the file by weeks.


If the buyers are willing to increase their offer, please draft an addendum and submit it to OHS with all parties’ signatures. My team will submit the buyers increased purchase price to the lender for the new decision.

- Please allow 1-2 weeks minimum to hear from the lenders if the buyer’s higher offer was accepted. (Please keep in mind that anything less that what lender counters needs to be approved by managers and investors).

- If the counter is accepted, lender will issue approval within 5 business days.

- At this point, lenders may reduce commissions or decline to pay fees, OHS will notify you if this occurs.


3) The lender declines your offer and does not counter you.

This happens when the offer was so low and the lender feels that this was a “low ball” or “fishing” offer. File is closed and you have to start the process all over. This is a perfect example why “low ball” offers should not be submitted to a lender.



We always requests that a full satisfaction of debt is approved, HOWEVER lenders have the right to allow a lien release only, require a promissory note be signed by the sellers, or not fully release the debt and charge the remaining balance off as a collectable balance.

If any of these items occur you will be notified. We tend to see that a full satisfaction of debt may not be approved for non-owner occupied properties or properties where the sellers have obtained a cash out refinance.

Always recommend to your client to contact a tax professional with regards to the possibility of adverse tax implications that might be associated with a short sale.

All of the negotiation will be handled exclusively by my team (in the event, of course that you elect to use our services).


AGENTS - DO NOT interfere with this process as it angers the lenders and make the lenders less likely to work with you on a file. Remember, lenders will only allow one main contact per file!

Node the bold and italics? Important stuff, that. In my experience, nothing gums up the works more than too many cooks in the kitchen....did I just mix my metaphors? Hope not.


This process of negotiation is the same process for EACH lien on a property. This means first, second, third mortgages, judgments, IRS liens, HOA back dues, etc.. The time frame may increase substantially as each lien must approve in writing the others transaction.



Nick.

The Short Sale Process: The Offer

If the property is priced correctly, it should generate multiple purchase offers. The lenders will only entertain legitimate offers to purchase.

PLEASE ONLY SEND IN THE HIGHEST AND BEST OFFER.

Can you tell how important that is? I'm just wondering if the bold and italicized letters tipped you off to how this is critical. Are you wondering why?

In the event of multiple purchase offers, the agent must present all offers to the seller. However, we are not required to present all offers to the lenders, as doing this would greatly delay the short sale process and confuse the lenders.

Unrealistic offers will be rejected quickly. Even worse and more likely, due to the enormous work load at the lenders, the offer will be ignored and the negotiator will not respond, at all, for weeks or months. The lenders do not have the time or the man power in this market for “fishing expeditions” from buyers.

When the agent receives an offer, they should instruct the homeowner to accept, counter, or reject the offer. If it is a “low ball offer”, the agent should use their expertise and skills to work with the seller to generate a counter that will net the highest price for the sellers.

Continue to actively market the property while the offer is being reviewed, if no offers are received in 7-10 days, drop the price and continue to do so every 2 weeks until you receive an offer. Any time you receive an offer, notify Short Sale Connections.


The following fees will NOT BE PAID by the lenders. Please do not submit an offer to my team with any of these fees requested on the EMA, or on addendums to the EMA.

1) Home Warranty/Home Protection Plan
2) Home Repairs **PROPERTY IS SOLD AS IS**
3) Inspection Fees, Pest Inspections, Pest Repairs
4) Fees normally paid by the buyers
5) Survey Costs
6) Junk Fees
7) Utility Bills

The following fees MAY BE CONSIDERED FOR PAYMENT BY THE LENDERS

1) Property taxes
2) Owners Title Policy
3) HOA fees
4) HOA transfer fees
5) Country documentary transfer fees (if applicable)
6) Escrow fees
7) Commissions **MAY BE REDUCED BY LENDER**
8) JR Lien Holders/Judgments/IRS Tax liens
9) Seller Concessions ** Most lenders will only pay up to 3% of the purchase price in seller’s concessions to the buyers. If you submit an offer with a request for higher than 3%, please notify the buyers that we can not guarantee that the lenders will approve higher concessions than 3%.


What's next? Negotiation, discussed here.


Nick.

Short Sale: Estimated Time Lines

From the time the offer and complete short sale package is sent, it will take 3-4 weeks for the lenders to set the file up in their systems, assign it to a negotiator and order the BPO (Broker’s Price Opinion, discussed later).

Seven to fourteen days later, the lenders will have received and reconciled the BPO. Within the next 30 days, a Demand/Approval letter SHOULD be issued. This timeline varies depending on whether the sale needs approval from an underlying investor, Fannie Mae/Freddie Mac, PMI (Private Mortgage Insurance) Company, or if there is more than one lender/lien on the property.

When also negotiating a release on a second, third, IRS lien, or judgments, the time frame may increase substantially as each lien must approve in writing the others transaction.

At this time, the industry standard to complete a short sale is 60-90 days.


The team welcomes your phone calls and emails to check status of the short sale process. However: please be aware that frequent phone calls and or emails delay not only our response times in replying to your questions, but also takes our staff away from working on your files so please allow 48hrs to return an email or phone call.

We greatly appreciate your patience!


Buyers should be aware when they submit an offer that this process takes more time than a regular transaction. Frequently, it can not be expedited as the lenders have specific time lines in reviewing a short sale package. Short Sale Connections will do all that we can within lender’s guidelines to expedite processing of your files. If an offer terminates at any time during the negotiation, with many lenders the process starts over, even if the offer is better or if the file was initially approved at the same or better offer. Please keep this in mind when communicating with buyer’s agents.

The foreclosure process will continue while the property is listed and even during the negotiations of a short sale. Short Sales Connections will request a postponement of the foreclosure sale if a legitimate offer is pending. We cannot guarantee approval of postponement of auction as any postponement is subject to lender approval.


Nick.