Lenders Are Changing Their Short Sale Behavior – Are You Keeping Up?
BPOs and Open Files, Oh My
I’ve had a successful short sale business for a couple of years now. Every now and then the lenders change the process slightly, and we as investors must change our strategy to keep current. Lenders rarely would allow buyer concessions two years ago. I’ve completed several successful transactions in the last twelve months, including residential service contracts and closing cost assistance. I define the hard and fast rules of years past to now be soft and squishy. What I am seeing now are two changes: BPOs and time period for open files.
The Broker Price Opinion (BPO) remains an important part of the short sale process. The lender will engage either a licensed appraiser or real estate agent to evaluate the property and determine the Fair Market Value (FMV) based on current property condition.
The lender will take a discount from the FMV dependent on many factors including loan type (FHA, Conventional), geographic location and economic factors. This is why it is so important to meet the BPO agent at the property to point out all the problems. You are meeting the BPO agent at your short sale properties, aren’t you? I’ll have an estimate available for the major repairs (roof, foundation, etc.). I always make sure the homeowner isn’t present to hear me talk badly about their home. In fact, I tell them I’m going to do it, and why.
The change I am seeing here are more lenders are requiring 2 BPOs per property. Not a bad thing, since appraisals are more of an art than a science. You as an investor need to be aware there may be more work involved during this part of the short sale process.
The lender’s loss mitigation department typically opens a file upon receipt of a short sale package. My packages always include the “insult the bank” purchase offer. I hate leaving money on the table, and will make the purchase price at the low end of the realm of reason. This silly little dance usually goes like this: The lender will deny the first offer and make a counter-offer. Ah-ha! Now I know their bottom line. If it matches my buying profile, I buy the property. If it doesn’t, I fine-tune my search for a new buyer, marketing the adjusted price. This dance has always worked effectively for me, and keeps me in control of the property.
The change I am seeing now is when the lender rejects the initial “insult the bank” offer, they close the file. What does this mean? The property goes back on the foreclosure block, and they only need 21 days in Texas. My time to remarket the properties that don’t meet my buying criteria is greatly reduced.
I don’t like putting in time, effort and energy into a property without a reasonable assurance that I am going to be successful. This means my team is changing our upfront marketing. Properties are going to be marketed immediately closer to the price the property will be sold at, along with the appropriate disclaimer that the sellers lender must approve the offer.
The BPO change is more of a time consumer than anything else for investors. The open file time line will have more of an impact. The real lesson here is to keep up to date on what’s going in your business. Case in point: Fannie and Freddie just halted all foreclosures from November 26 – January 9. Our short time line just received a reprieve!
I love this business!
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