Secrets to successfully beating a bad BPO

The most important part of a short sale is to make sure the BPO comes back low.  But sometimes there is absolutely nothing you can do.  It can still come in high.  It all depends on the agent doing the BPO or the appraiser doing the appraisal.  So what do you do if the BPO did come in too high and it’s going to kill the deal?  First, you want to tell the negotiator that you need to dispute the value and tell them why.  You are going to want to provide evidence of why you feel the value is too high.

In order to successfully dispute the value, the first thing you will want to do is run your own comps.  Pick as many low comps that you can find that can justify your desired value, but you will need at least three comps.  I like to get as many as I can find.  Submit everything that justifies your position – the actives, under contracts, pending, short sale under contract, solds, and expired listings.  Make as many remarks on the comps as you can and circle important data for the negotiator such as days on market.  This is very important because every MLS looks different, and you want the negotiator to find the information you need them to see.

The second thing you should do is get a repair if the house needs work.  If the house is a fixer upper and needs to be totally rehabbed, I suggest you get a bid from a professional licensed contractor who can remodel the whole house.  If you need to get secondary bids for a roof, electrical, structural, get those as well.  Be aware that you may need to get three bids, the bank may request this.  If this is the case, call two more contractors for their estimates.

Once these two steps have been completed I would submit both of these items to the negotiator for review.  She will review the information and then give the data to the banks value review team for a reconsideration of value.

If the bank still does not want to change the value, then there are two more techniques that I like to do.  One, I will order an appraisal on the property.  This will cost $300 to $500 out of your pocket so before you order one, make sure you speak to the appraiser and tell him that this is a distressed sale and where you need the value to come in.  They can quickly look at comps, and if they don’t see any justification for the value that you need then there is no reason to waste his time and your money to do an appraisal.   If he feels your value is justified, then it is definitely worth the money for the appraisal.  The bank will almost always use an appraisal over the BPO.  A formal appraisal carries more weight than a BPO.  What they generally do is dismiss the BPO and use the appraisal as the current value.  You will need to email the negotiator a copy of the actual appraisal with the pictures.

Another technique is to pay for a complete inspection.  This can run anywhere from $150 to $350.  You want to make sure the inspector you use can make a report that they can email you with color pictures of all the damages.  Make sure the inspector does a very thorough inspection and is instructed to documents every problem no matter how small.  The more items noted the better.  You will want to show the bank what they will be dealing with once they take the house back.  You need to make sure to tell the bank that the house will not pass a VA or FHA appraisal and list the reasons why.  Make sure to emphasize that this will make the house quite unmarketable to the bulk of their potential buyers unless they are willing to make repairs.  This is only relevant if the house is in the typical FHA or VA price range.  If you are dealing with a higher dollar property, you will need to address items that will make the house undesirable to a conventional lender.

You goal is to show the bank that the house needs a lot of work and only a cash buyer will be able to buy the house.  Fortunately for you, most people don’t have.  Most people barely have money for the earnest money, inspection and appraisal.  Make sure the bank knows that if they foreclose these are issues they are going to have to take care of or they will need to sell as is to a cash investor.  Point out that they will make more money just accepting the offer now, getting it off their books, and using that money to lend out on more loans.

There are many more techniques you can do, but this is already a long newsletter so I will just cut it off here.  I hope you guys have a happy new year.  Have fun celebrating tonight.  Make sure you start focusing on your goals for 2011 immediately.   You shouldn’t delay with getting your goals set for next year.