As you are likely already aware, a short sale might be necessary on a property when the debtor can no longer meet the required payments to pay back the loan for the property. When this happens, the lender may choose to go for the option of agreeing to sell a property at a value that does not fulfill the outstanding debt. Though in doing this the creditor is agreeing to a loss, it is typically seen as preferable to hounding the debtor for finances that they just don\’t have. This agreement is known as a short sale.
The compromise is that the creditor recoups most of the value of the loan whilst putting a stop to further losses, whereas although the debtor loses the home, their credit rating is left intact. This is seen as a reasonable way to negotiate the difficulty of a debtor who may have become unemployed, for instance. A short sale is usually agreed to, provided that the lower valuation of the home is taken into account by the lender to be reasonable.
This is where the BPO, or Broker Price Opinion, comes in. When a short sale is agreed upon, a broker is requested to offer a valuation on a home that the lender would agree to. If the value provided by the agent is thought by the lender to be too low and will not provide a reasonable outcome, then they could refuse the short sale and start foreclosure proceedings.
Because the debtor can no longer meet the required payments to avoid foreclosure, it\’s vital that the home is sold as quickly as possible, which would require a price as less as possible. This compromise between the requirement to sell and the requirement to satisfy the lender requires a fine balancing act, and some degree of proficiency on behalf of the agent.
One significant thing for the broker to keep in mind is that a full BPO is likely to reveal reasons as to why the value should be reduced, while a drive-by BPO, which offers information only on the exterior, probably would not. If there is internal damage to the infrastructure of a house then any cost of repairs must be covered by the new buyer, which decreases the value of a house.
The broker could even do some research into the surrounding neighborhood. Are schools or hospitals nearby? What about transportation like buses or subways? What are the crime statistics for the region? What are the neighbors like? These are just some of the factors that could contribute to a reduction in the value of a home and things that can be of massive assistance in coming to a valuation that the lender will agree to.
Ensure that you communicate clearly with the seller, after all they know the house and the area better than you do so they might be aware of something that you could have missed. Be sure to research any information that they might provide you though or else you might find yourself in trouble for putting forward false information.
What you should remember at all times is that the final decision lies with the lender and so it\’s your job to make them happy, not the seller. When making your case to the lender you should be in a position to offer information and documentation that suggests strongly that they should agree with your valuation.
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