My bank is sending someone over for a BPO. What should I do?
The Broker’s Price Opinion (BPO) is perhaps the most critical step in the short sale approval process. A BPO is the bank’s field review of the property to determine the basis for its value.
A lender will typically approve a mortgage payoff that is a predetermined percentage of the BPO value. For example, a lender might only allow a payoff of no less than 84 percent of the value established in the BPO report. In other words, if the BPO states that the property is worth $100,000, then the lender might expect to receive no less than $84,000. That does not mean the lender would approve a sale price of $84,000. Adding realty commission, closing costs, and property taxes on top of that, it is feasible the lender would accept a sale price of $92,000 or higher.
So, if the Agreement of Sale price is $105,000 and the BPO values the property at $100,000, the bank will be eager to approve a short sale at $105,000. If the BPO values the property at $100,000 but the price in the Agreement of Sale is $60,000, the bank will likely reject that sale price. Therefore, it is important that the BPO valuation be reasonably close to the sale price.
The lender often uses hires a real estate agent from the area to perform the valuation. In some cases, the agent may not be from the area. In some cases, the agent may not be aware that the property is a short sale. In some situations, the bank will pay for an appraiser to conduct an appraisal, but the lender may still refer to the report as a BPO.
A short sale seller does not need to tidy up the house for the BPO agent. The seller does not need to leave the house, as this is not a normal showing with a buyer. The BPO agent will take exterior photos and in most cases, interior photos. The seller, or the listing agent, should point out the defects and necessary repairs for inclusion in the report that goes to the bank. The BPO agent should be informed that this is a short sale situation. The cause of the hardship should be conveyed.
It is okay to give a few comparable sales to the BPO agent, and many will appreciate that gesture as it can save them time in preparing the report. Someone should tell the BPO agent the sale price.
The objective is to inform the BPO agent of the circumstances of the sale, with the hope that their valuation will be in line with the sale price. If the BPO valuation is close to the sale price, then the bank is far more likely to approve the short sale.