Say you submit a short sale and the bank says no, what is your next step?
First, realize now that you’re only going to be able to have at most 70% of your short sales accepted. And this only when you have the best training possible.
That means even experts will have 30% of their deals will fall apart. Consequently, when you get specialized knowledge in short sales success as a creative real estate investor, you can close seven out of ten of the packages you prepare and present.
The first mental step to remember is, 100% of the properties you can short sell are likely not deals until you make them one. So…
You don’t lose anything on a short sale where the bank says, “No.”
Knowing your numbers and the current condition of the over leveraged home will prepare you mentally when the bank does say no.
So why would a bank say know when there’s no equity and no solution for a motivated seller?
The bank may say no for several reasons:
Then bank may have been given a high BPO (Broker’s Price Opinion) by a Realtor(TM) who wants to impress the bank.
Likewise, an inexperienced, ambitious loss mitigation rep may misunderstand his/her duty.
Finally, some lenders will say, “No” because a foreclosure sale date that is just days away and the person with the authority to change/delay/overturn that date is gone.
Of these options it’s usually the BPO that is making the bank say, “No.”
It’s useful to understand the BPO and it’s role in the short sale process.
The “Broker’s Price Opinion? is created when the bank sends a real estate agent or Broker to the property to judge its value. Since these members of the community are experts, their opinion of value is taken as authoritative.
Because agents and appraisers are usually being asked justify a high value for a property, they often mistakenly go into this mode and give a BPO at the high end of the scale.
To understand why brokers think, “High Value” all the time, walk in their shoes for a moment.
Most homeowners trying to purchase a home need top value in order to qualify for the loan. Likewise, most sellers want to find their home has appreciated greatly. They want to make money when the sell. Therefore, it is usual to hire an agent who strokes their ego by saying the home is highly appreciated.
To help recalibrate an agent, you as a creative real estate investor want to meet the agent at the property. When there, plead your case and ask for the lowest BPO possible.
However, a broker needs to justify the price in order to be giving a professional opinion. Thus, you improve your case when you give the agent your complete short sale package.
Go ahead and run comps for the agent, give copies of your pictures, your list of repairs, and walk the agent through the house room-by-room lingering in the worst places in the property.
Make the homeowner’s pain come to life by showing the agent family pictures and financial outlook. Explain how a low BPO will insure a successful short sale and give the homeowner a chance to start over.
When the BPO comes in too high the bank will overvalue the property.
Since they bank has an obligation not to “Dump” the property (a technical term meaning sell it irresponsibly low according to the government), they will have to, by law, reject your very solid creative real estate investing offer.
Assuming the bank said no because of the BPO, your first step is to challenge it and request a second opinion.
Our conversation with the loss mitigation rep goes something like this:
“My friend is a real estate agent. She ran comps and says the person who did your BPO may be trying to make you happy at your unfortunate expense.
My friend says the numbers are way too high–not just a little bit. And she should know. She knows and loves this neighborhood and knows property values on every street.
Do you know if your agent specifically works this neighborhood?
Even if so, he may be steering you wrong. It would be a financial shame for your bank to take the property at the sheriff’s sale, only to lose more money.
How about we do the right thing and schedule a second BPO. I’m sure if you choose someone who understands your need for a fair price (not one designed to win a listing) and works this neighborhood significantly, you’ll get an opinion that the property is only worth $___________.
Since your bank is not in the business of losing money, would you let me know when you schedule another BPO, so I know when to resubmit my offer to you??
The purpose of your conversation is to make the bank question the first BPO. Banks are not in the business of losing money. An incorrect BPO will come back later to haunt the loss mitigation rep.
Once we schedule a second BPO, work your magic again.
Meet the new agent at the property and plead your case.
We had a recent deal where the first BPO came in at $295,000 and the second one came in at $215,000. The property was realistically worth $450,000 with a $350,000 balance.
We originally offered $199,000, but the bank was firm at $300,000.
With an $80,000 difference in the BPO’s, the bank lowered its number from $300,000 to $250,000 making the deal work.
It was a sweet deal for us which required a second BPO.
Of course, you know to expect, even with expert training, to have no more than 70% of you short sales close. (In fact, if you’re closing more you’re offering too much!)
If, after a second BPO, you still can’t get the bank to see it your way, pass on the deal and move on to the creative real estate investing deal.