Webster’s defines ludicrous as “meriting derisive laughter or scorn as absurdly inept, false, or foolish”, which basically defines the entire short sale process which hinges on a $50 BPO (Broker Price Opinion) as the key determinate for approving short sales. In a nutshell, banks spend hundreds of man hours with each file gathering, processing, re-gathering, re-processing and finally reviewing documents on short sale sellers, but when it all comes down to it, they make their decision based on a $50 Broker Price Opinion, which may or may not have any merit at all.
The decision to approve a short sale often means a large loss to the banks, sometimes hundreds of thousands at a pop. The decision to NOT approve a short sale can mean even LARGER losses to the banks (either due to a final, much lower sale, or even foreclosure). How in the world our entire national banking system has come up with the idea that paying a NON Appraiser $50 (which some providers do “as pocket change” to supplement their real estate income), is the way to determine the value of a property and therefore mitigate a loss to the bank, is LUDICROUS.
They obviously do it to save money, yet one, just one, bad BPO can cost the bank losses which are 10 or 100 fold larger. Multiply this by the hundreds of thousands of homes they are processing as short sales and you really start to scratch your head.
There is a saying, “A chain is only as strong as its weakest link” – in this story, the BPO is a paperclip, attached to an iron chain trying to pull a truck uphill. The question is not when is it going to fail, but what is it going to allow the truck to crash into when it tumbles back downhill. It is not just the seller, buyer or bank at the bottom of the hill, it’s our economy down there.
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Article by Janie
Janie is past president of CREW Miami – Commercial Real Estate Women and has been in construction, real estate and development for 20 years. She has put to good use her degree in Marketing and Business from the University of Richmond in her love of marketing real estate. Having lived in such multi-cultural cities as Washington DC and Miami as well as in Europe, there was no better home in real estate than Sotheby's International Realty for Janie to reach an international audience interested in Miami real estate.
{ 6 comments… read them below or add one }
I agree with you here. But at the same time, this is how the banks got into this trouble. In the boom of the real estate market. Appraisers were being paid to say that house were worth the inflated prices buyers were willing to sign for. I sold a 850 sq ft house for an ungodly amt of money. And when the appraiser came I asked her how she determined the price. Her answer, "I don't have to." I already have the proposed purchase price. So, she just took a few pics and signed it off.
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I fully agree with you Andrea, they did help create the problem. The issue now is they are not even hiring appraisers who are at least trained and licensed in home valuation, but hiring real estate agents (I'm not knocking agents, I am one) who may or may not know how to properly value a home, for about 1/6 the price to state their "opinion" of the value. So now you have people being paid a fraction (read rushed, shabby job) who have no training and then relying on this sole piece of info to decide to approve or not approve the short sale. They should at least take this one crucial step seriously and they'd be loosing far less money than they are (and we are, as taxpayers)
The annoying part of this equation is the friction that we face when we negotiate the purchase price with our clients' lenders due to a "Broker Price Opinion" which is, I agree, a LUDICROUS requirement.
On EVERY listing, I ALWAYS require that the BPO agent contact me directly so I can meet them there to present them with the correct information.
My most recent experience? The bank's BPO agent sent his uncle, an un-licensed individual, to enter the home, photograph the home, and report back to the agent. This "Interior" BPO was nothing more than a drive by, and there was no real examination of the surrounding competition.
I am days away from an approval, but I have had to fight them the entire way over who knows more about this property…and it's me…not the BPO agent.
Jon, I wish you lots of luck with your closing and hope that each family will be on to their next chapter (buyer in the home and seller moved on) Good luck!
Who prepares BPO’s?
Real estate brokers and real estate agents, that’s who.
Last time I checked brokers and agents sell and list homes every day and definitely have a grasp on market values.
If you’re an agent and dislike how BPO’s are done, you should learn how to prepare them to make a difference.
Hi Frederic, but they aren't appraisers, which is a differently trained industry. More than who does it, the banks are only offering a fraction of the amount a true appraisal costs, so the corners get cut and things fall through the cracks and the ones who loose are the sellers and the buyers. It's like a art collector sending the frame repair person to bid on his Picasso. The frame repair person does a similar job and might be good at it, but he's not the BEST to be bidding on the Picasso and fortunes might be won or lost with that one bid…