The Role of the BPO (“Broker Price Opinion”)
When someone owes $250k on a home currently worth $200k, arguably they no longer own the home . . . their bank does (or, at the very least, the bank calls the shots).
So, it would seem smart to find out what the bank is willing to sell the home for before putting it on the market.
But, that’s not how short sales work.
Rather, first the owner and listing agent set the home’s asking price, and negotiate a sales price with a Buyer.
Step #2?
Forwarding the deal to the lender (or lenders), who then orders what’s called a BPO (“Broker Price Opinion”) — essentially, an appraisal for purposes of a short sale.
“Johnny-Come-Lately”
It’s the BPO that putatively tells the lender(s) what the home’s fair market value is — and whether to ratify the Purchase Agreement that the owner has accepted (which also means writing off a chunk of the owner’s mortgage).
The catch: many would-be short Sellers initially listed too high, and as a result their homes have languished on the market and suffered serial price reductions.
Meanwhile, the housing market overall has been improving.
By the time the bank orders the BPO, there can be a gap between the home’s now marked-down price and prevailing prices generally.
Short Sale Pros & Cons
What happens then?
The BPO comes in above the negotiated sales price, the bank rejects the deal and/or counters higher, and the frustrated Buyer — who may have waited months to hear from the bank . . . walks.
That’s why short sales are high-risk undertakings, and not for the impatient or faint of heart Buyer.
On the plus side: when they go through . . . they can be (very) good deals.
See also, “Short Sale Scuttlebutt: Odds of Success Now Decreasing“; “Perils of Overpricing Even (Especially) in a Rising Market”; “Short Sale Denial, Short Sale Semantics”; and “Trying to Get Buyers to Bite on Short Sales (Cont.).”
