Are you meeting the appraiser/BPO agent at the property?
If you are tired of appraisals coming in too high and BPOs blowing up your deals, you MUST meat the appraiser at the house with the following in your hand at minimum:
- Copy of the signed contract
- listing history with all price reductions
- detailed showing report showing ALL showings
- repair bids
- Comparable sales and listings to show FMV
With those 5 things you can discuss with the appraiser how you can to the listing price and more importantly how the buyer and seller came to the agreed to sales price. Be detailed in these reports and your appraisers will love you and your appraisals will be much more accurate.
Remember, many times the BPO agent and even the appraiser does not know why they are doing the evaluation, it could be for many different things. You need to tell them the reason for the appraisal so that they understand. Also, when the banks order these evaluations, they do not share the sales contract with the appraiser.
DON'T FORGET TO TAKE THE KEY OUT OF THE LOCK BOX SO THAT THEY NEED TO MEET YOU THERE TO GET IN
Replies to This Discussion
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Permalink Reply by Steve Early on
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AMEN!!
Every time we get back a high counter, I ask the listing agent if they went to the BPO. I usually hear that "something came up" and they couldn't go. If you want your short sale to close, you should treat the BPO like it is the most important thing on your calendar for the day. Nothing should take precedence over this. Once a high valuation is placed on a property it is REALLY difficult to get an adjustment downward.
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Permalink Reply by Jeff Payne on
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Steve, as soon as agents understand this, whether they are the buyers agent or listing agent, their short sales will go much smoother. Aside from assembling a perfect package, this is the most important step.
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Permalink Reply by Smitty on
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Jeff,
Awesome!!
I also explain the homeowner's hardship to the BPO agent. They should be aware that the seller has a compulsion to sell and why, because that is a factor in how they value a property.
I also never let someone access the property if they are just the "picture taker" for these BPO houses. If you're valuing the property, you need to be IN IT AND WALK THROUGH IT. If a picture taker shows up, we send them along their way, and tell the lender they need to order another BPO. Many lenders have no idea the person valuing the property has never physically seen it.
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Permalink Reply by Jim Schneider on
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sorry Smitty, but I couldn't let that slide. I don't blame you for tugging on the heart strings, but suggesting that a seller's hardship should change a value; that is just incorrect. It suggests that the bpo agent should place your seller's hardship over their obligation to provide unbiased information. The agent should be considering the most similar properties not why the seller is selling.
Smitty said:"...I also explain the homeowner's hardship to the BPO agent. They should be aware that the seller has a compulsion to sell and why, because that is a factor in how they value a property.
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Jim,
The fact that the homeowner has a compulsion to sell ABSOLUTELY is a factor in determining value because you don't have normal marketing time. A homeowner that is not in duress and has all the time in the world to sell can price their house at whatever the heck they want, but a homeowner that may be up against an auction deadline or is 6 payments behind, knows the lender will be closing in so their compulsion to sell is very different than a regularly priced home where the homeowner has all the time in the world to sell their property.
It's liquidated value vs. fair market value. Most REO's/short sales are liquidated property. Any BPO agent that's worth their weight should know the homeowner's situation. Jeff was right on the money. Most BPO agents and appraisers have NO IDEA why they are at a property, so it's my job to provide them with the most accurate information pertaining to the sale and the fact that my homeowner not only does not have normal marketing time, but a compusion to sell because of their situation is all part of valuing the property.
- FAIR MARKET VALUE
"Fair market value is defined as the amount in cash or terms reasonably equivilent to cash, for which in all probability the property would be sold by a knowledgeable owner willing but not obligated to sell to a knowledgeable purchaser who desired but is not obligated to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and reasonably be given substantial weight in bargaining by persons of ordinary prudence, but no consideration whatever should be given to matters not affecting market value."
LIQUIDATED VALUE
1. Consummation of a sale will occur within a severely limited future marketing period specified by the client.
2.The seller is under extreme compulsion to sell.- 3. A limited marketing effort and time will be allowed for the completion of the sale.
- http://en.wikipedia.org/wiki/Market_value
No one should compare a short sale to a regular market value property. They are not the same things. The hardship is very important in considering the short sale for the lender and it is very important in the valuation process.
- FAIR MARKET VALUE
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Smitty,
first you mentioned sharing the seller's hardship, that is WHY they have to sell the property, and it definitely should not affect value. You have slightly changed from your original message, suggesting that a short sale will yield a different price, that's HOW they have to sell.
If the sellers are selling because of job loss is the house worth less or more than if they are selling because of a divorce? That is not something we should be judging. If the buyer has to sit there for four months with uncertainty as to whether the sale will close or not, that could effect value.
If the property is on the mls as a short sale, it's pretty obvious that it is a short sale.
Usually when sent on BPO's we are required to give a Fair Market Value, as if it were a normal sale. Obviously that's not usually actually the case, but it doesn't change the kind of value the client is requesting. They may decide they want less, the same, or more than that, but that is up to the end client for that bpo.
Most often, bpo's will ask for values at a 90 day market price and at a 30 day market price, and they will ask that if the area is distressed sales driven that we use distressed sales and if the area is not distressed sales driven. It's clients choice.
Smitty said:Jim,
The fact that the homeowner has a compulsion to sell ABSOLUTELY is a factor in determining value because you don't have normal marketing time. A homeowner that is not in duress and has all the time in the world to sell can price their house at whatever the heck they want, but a homeowner that may be up against an auction deadline or is 6 payments behind, knows the lender will be closing in so their compulsion to sell is very different than a regularly priced home where the homeowner has all the time in the world to sell their property.
It's liquidated value vs. fair market value. Most REO's/short sales are liquidated property. Any BPO agent that's worth their weight should know the homeowner's situation. Jeff was right on the money. Most BPO agents and appraisers have NO IDEA why they are at a property, so it's my job to provide them with the most accurate information pertaining to the sale and the fact that my homeowner not only does not have normal marketing time, but a compusion to sell because of their situation is all part of valuing the property.
- FAIR MARKET VALUE
"Fair market value is defined as the amount in cash or terms reasonably equivilent to cash, for which in all probability the property would be sold by a knowledgeable owner willing but not obligated to sell to a knowledgeable purchaser who desired but is not obligated to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and reasonably be given substantial weight in bargaining by persons of ordinary prudence, but no consideration whatever should be given to matters not affecting market value."
LIQUIDATED VALUE
1. Consummation of a sale will occur within a severely limited future marketing period specified by the client.
2.The seller is under extreme compulsion to sell.- 3. A limited marketing effort and time will be allowed for the completion of the sale.
- http://en.wikipedia.org/wiki/Market_value
No one should compare a short sale to a regular market value property. They are not the same things. The hardship is very important in considering the short sale for the lender and it is very important in the valuation process.
- FAIR MARKET VALUE
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I agree really with both of what you guys are saying. The fact that there is a hardship and a short sale doesn't necessarily mean that the value is lower in my opinion but the reason that I share those items with the BPO agent or the appraiser is so that while they are doing their appraisal, they will take into consideration and be more conservative in their evaluation. I am shocked at how many times that I ask the BPO agent or appraiser if they know who is ordering and why it is being ordered, they do not know why. When I get BPO orders that do not require an interior inspection, I rarely know why I am doing them. Showing the hardship can only help to keep from getting over inflated appraisals that we all see.
I appreciate the input from both of you, a lively debate is always good :)
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Jim,
Hardship = compulsion to sell. If I don’t have normal marketing time to sell a property and there is a compulsion to sell, a BPO should be made aware of that because it affects the value. If my sellers had as long as they wanted, I would value their property as a fair market valuation. They could take the home off the market if they wanted because they didn’t get the price they wanted and put it back on in a year or two and see if they could fetch more, but in a short sale that is never the case. Most BPO agents don’t know the difference. Appraisers typically do.
“first you mentioned sharing the seller's hardship, that is WHY they have to sell the property, and it definitely should not affect value”The two biggest reasons a short sale needs to be looked at as a LIQUIDATED value as opposed to FAIR market value is because of the shortened marketing time and the compulsion on the part of the homeowner to get rid of the property. A BPO should be made aware if I have three weeks to get the property under agreement because of an impending foreclosure. Divorce and job loss are both hardships when the homeowner is under water and that has to be taken into consideration. The homeowners HAVE TO SELL! So yes, we should be judging it in our values.
Liquidation Value: from The Dictionary of Real Estate Appraisal, Appraisal Institute, Fourth Edition: The most probable price that a specified interest in real property is likely to bring under all of the following conditions: 1. Consummation of a sale will occur within a severely limited future marketing period specified by the client. 2. The actual market conditions currently prevailing are those to which the appraised property interest is subject. 3. The buyer is acting prudently and knowledgeably. 4. The seller is under an extreme compulsion to sell. 5. The buyer is typically motivated. 6. The buyer is acting in what he or she considers his or her best interest 7. A limited marketing effort and time will be allowed for the completion of a sale. 8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto. 9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale
Banks ask BPO agents to evaluate short sale property as if it were FMV property, but it’s impossible because of the above. Every short sale agent knows you have to price a short sale aggressively enough to satisfy the lender and get a buyer in to make an offer. If you have two homes and home A is a short sale and is exactly the same as home B and they are right next to each other, home A will be priced LESS than home B because it’s a short sale, distressed property, which means the homeowner wants to get rid of it and I have less time to sell it than home B.
The reason I make sure a BPO agent knows the hardship, i.e. compulsion to sell, is because it absolutely affects how they would value the property, which means a lower price and means I have a better opportunity of getting my sale accepted.
Jim Schneider said:Smitty,
first you mentioned sharing the seller's hardship, that is WHY they have to sell the property, and it definitely should not affect value. You have slightly changed from your original message, suggesting that a short sale will yield a different price, that's HOW they have to sell.
If the sellers are selling because of job loss is the house worth less or more than if they are selling because of a divorce? That is not something we should be judging. If the buyer has to sit there for four months with uncertainty as to whether the sale will close or not, that could effect value.
If the property is on the mls as a short sale, it's pretty obvious that it is a short sale.
Usually when sent on BPO's we are required to give a Fair Market Value, as if it were a normal sale. Obviously that's not usually actually the case, but it doesn't change the kind of value the client is requesting. They may decide they want less, the same, or more than that, but that is up to the end client for that bpo.
Most often, bpo's will ask for values at a 90 day market price and at a 30 day market price, and they will ask that if the area is distressed sales driven that we use distressed sales and if the area is not distressed sales driven. It's clients choice.
Smitty said:Jim,
The fact that the homeowner has a compulsion to sell ABSOLUTELY is a factor in determining value because you don't have normal marketing time. A homeowner that is not in duress and has all the time in the world to sell can price their house at whatever the heck they want, but a homeowner that may be up against an auction deadline or is 6 payments behind, knows the lender will be closing in so their compulsion to sell is very different than a regularly priced home where the homeowner has all the time in the world to sell their property.
It's liquidated value vs. fair market value. Most REO's/short sales are liquidated property. Any BPO agent that's worth their weight should know the homeowner's situation. Jeff was right on the money. Most BPO agents and appraisers have NO IDEA why they are at a property, so it's my job to provide them with the most accurate information pertaining to the sale and the fact that my homeowner not only does not have normal marketing time, but a compusion to sell because of their situation is all part of valuing the property.
- FAIR MARKET VALUE
"Fair market value is defined as the amount in cash or terms reasonably equivilent to cash, for which in all probability the property would be sold by a knowledgeable owner willing but not obligated to sell to a knowledgeable purchaser who desired but is not obligated to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and reasonably be given substantial weight in bargaining by persons of ordinary prudence, but no consideration whatever should be given to matters not affecting market value."
LIQUIDATED VALUE
1. Consummation of a sale will occur within a severely limited future marketing period specified by the client.
2.The seller is under extreme compulsion to sell.- 3. A limited marketing effort and time will be allowed for the completion of the sale.
- http://en.wikipedia.org/wiki/Market_value
No one should compare a short sale to a regular market value property. They are not the same things. The hardship is very important in considering the short sale for the lender and it is very important in the valuation process.
- FAIR MARKET VALUE
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Smitty, I think where I disagree with you is best clarified by this: Who is the bpo agent's client? Is it your seller? The buyer? No, it's the financial institution that ordered the report. As such they have a responsibility to answer that clients questions honestly.
If the client's question is, "what is the fair market value for this property if it had a 90 day marketing time" then that agent should answer that question, not answer based on some responsibility to another agent's clients.
Should a buyers' agent advise his clients to pay more for the house because your seller "really needs to sell." No, I think everyone here would agree that is a gross violation of our obligation to clients.
"Hardship = compulsion to sell. If I don’t have normal marketing time to sell a property and there is a compulsion to sell, a BPO should be made aware of that because it affects the value."
When I'm doing bpo's the clients don't ask for my opinion on hardship, it is up to them to decide if the sellers' reason is sufficient to make a short sale necessary.
You said, "Banks ask BPO agents to evaluate short sale property as if it were FMV property..." and then go on to suggest we should give them a different value, that is breaking our fiduciary duty. The effect of agents giving their clients false information, is an errosion of trust. That is why I bristled at your comments.
I have completed hundreds of bpo's and many short sales, and from a practicle stand point, consider these options. When you meet the agent taking photos for the bpo, you could do either of these:
1. Meet the agent with well researched comps, a list of repairs, and data on whether the local market is declining and/or distressed sales driven. Point out needed repairs, and mention the contract price.
2. Do all of the above and then say, "you know my client really NEEDS to sell this because he/she _______________."
Which do you think they are more likely to respond to? From experience, the second makes me feel like you are asking me to violate my client's trust to help yours. If you did all that's mentioned in the first, you are likely to get a much better reaction. I don't think there is any way the bpo agent could HONESTLY add the hardship into the report. If the agent wrote down I have adjusted the value for subject -$8000, because this seller REALLY needs to sell because he _____; the client would remove that adjustment...and probably never use that bpo agent again.
BPO's regurlarly ask for a valuation based on a given market time, 90 days, 30 days, etc. so market time is taken into account, but not hardship. Comps are adjusted for their time on the market, so a comp that was on the market 150 days should get a negative adjustment, if the subject is being evaluated for a 90 day market time.
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Jim,
“Should a buyers' agent advise his clients to pay more for the house because your seller "really needs to sell." No, I think everyone here would agree that is a gross violation of our obligation to clients.”
I’m not sure even what you mean by this. NO ONE in this market is going to over pay for a house. Actually, it’s quite the opposite. People are getting bargains because we’re in a distressed market.
“I disagree with you is best clarified by this: Who is the bpo agent's client? Is it your seller? The buyer? No, it's the financial institution that ordered the report. As such they have a responsibility to answer that clients questions honestly.”Never did I say that we should not answer honestly. It’s quite the opposite. I believe the BPO agent should be well informed about the property they are evaluating, including the hardship. I feel giving the BPO agent the most information about the property leads to a true honest assessment about its value.
I think I’m not explaining it properly. I’m not asking a BPO agent their “opinion of the hardship” – I’m stating the facts. The seller HAS a hardship and therefore it is a distressed property, has less marketing time, the seller HAS to sell and because I don’t have all the time in the world to sell it, the value is affected.I’m not suggesting you give them false information. No where did I suggest that. What I am saying is it’s impossible to compare a short sale to a FMV property because of the hardship. They are two totally different things as given in my example of two exact same properties, one with a hardship and one without.
“Distressed property” is defined as “real property that suffers a reduction in its market price because of pressures operating on the owner, such as threatened foreclosure, divorce, settlement of an estate, or fear of economic changes that might decrease the value.” (The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD, 2007.)The definition of “Fair Market Value” property is The amount for which real property or Personal Property would be sold in a voluntary transaction between a buyer and seller, neither of whom is under any obligation to buy or sell. The customary test of fair market value in real estate transactions is the price that a buyer is willing, but is not under any duty, to pay for a particular property to an owner who is willing, but not obligated, to sell. Various factors can have an effect on the fair market value of real estate, including the uses to which the property has been adapted and the demand for similar property.Fair market value can also be referred to as fair cash value or fair value.( http://legal-dictionary.thefreedictionary.com/Fair+Market+Value)
Banks are asking BPO agents for FMV of a property that is DISTRESSED. It’s impossible. That’s what I’m trying to relay.
If I meet a BPO at a property I not only give them number 1 but I tell them #2. It’s not my job to make you feel warm and fuzzy about doing the valuation. It’s my job to give you the accurate information about the property so you can do your valuation properly. I’m not asking you to violate anything. I’m giving you important information so you can give your client a true and accurate value of the property. You’re client isn’t in the business of HELPING mine. You’re client is in the business of making money on performing notes. When my client defaults, it comes down to whether or not it will cost the lender more to foreclose or accept a short sale. They have no interest in helping my client. It’s a numbers game. If it makes financial sense to accept a short payoff they will. Never have I run into a lender that said, “Well it makes more sense for us to foreclose because we’ll lose less money, but NO WE WANT TO HELP THE HOMEOWNER”
“BPO's regurlarly ask for a valuation based on a given market time, 90 days, 30 days, etc. so market time is taken into account, but not hardship”This is exactly my point. HARDSHIP is reduced marketing time. Without a hardship, you have all the time in the world to sell. WITH hardship you may only have 120, 90,30 days to sell and that’s the exact reason the hardship needs to be mentioned to the BPO agent, because it is giving them the heads up that we don’t have all year to sell this property.
Jim Schneider said:Smitty, I think where I disagree with you is best clarified by this: Who is the bpo agent's client? Is it your seller? The buyer? No, it's the financial institution that ordered the report. As such they have a responsibility to answer that clients questions honestly.
If the client's question is, "what is the fair market value for this property if it had a 90 day marketing time" then that agent should answer that question, not answer based on some responsibility to another agent's clients.
Should a buyers' agent advise his clients to pay more for the house because your seller "really needs to sell." No, I think everyone here would agree that is a gross violation of our obligation to clients.
"Hardship = compulsion to sell. If I don’t have normal marketing time to sell a property and there is a compulsion to sell, a BPO should be made aware of that because it affects the value."
When I'm doing bpo's the clients don't ask for my opinion on hardship, it is up to them to decide if the sellers' reason is sufficient to make a short sale necessary.
You said, "Banks ask BPO agents to evaluate short sale property as if it were FMV property..." and then go on to suggest we should give them a different value, that is breaking our fiduciary duty. The effect of agents giving their clients false information, is an errosion of trust. That is why I bristled at your comments.
I have completed hundreds of bpo's and many short sales, and from a practicle stand point, consider these options. When you meet the agent taking photos for the bpo, you could do either of these:
1. Meet the agent with well researched comps, a list of repairs, and data on whether the local market is declining and/or distressed sales driven. Point out needed repairs, and mention the contract price.
2. Do all of the above and then say, "you know my client really NEEDS to sell this because he/she _______________."
Which do you think they are more likely to respond to? From experience, the second makes me feel like you are asking me to violate my client's trust to help yours. If you did all that's mentioned in the first, you are likely to get a much better reaction. I don't think there is any way the bpo agent could HONESTLY add the hardship into the report. If the agent wrote down I have adjusted the value for subject -$8000, because this seller REALLY needs to sell because he _____; the client would remove that adjustment...and probably never use that bpo agent again.
BPO's regurlarly ask for a valuation based on a given market time, 90 days, 30 days, etc. so market time is taken into account, but not hardship. Comps are adjusted for their time on the market, so a comp that was on the market 150 days should get a negative adjustment, if the subject is being evaluated for a 90 day market time.
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Permalink Reply by Wendy Rulnick on
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I am piping in late on this discussion. I don't meet BPO agents or appraisers at my listings (short sale or other). Normally, I know what their thinking will be, so we strategize pricing accordingly. I'd say the decision to meet a BPO agent or appraiser is a local one. If you have lots of issues with their valuations, maybe meeting them is a good idea.
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