To Short or not to Short…
What is a short sale? In real estate a Short Sale is considered to be the sale of a property where the lender agrees to accept a lesser amount that is actually owed. In other words the homeowner is shorting the bank when the property sells.
In reality it could be a big headache for the buyer and the listing agent, the buyers agent and it could turn into a disappointing event for the seller if the process is not treated seriously and it is not done right.
What is a BPO?
The term BPO is an acronym for a broker’s price opinion. It is a method that a licensed real estate professional uses to estimate the value of a property.
All the data gathered is submitted in a BPO report.
A BPO report contains information about the local and regional Real Estate Market, subject property and closed and listed comps (properties that are most comparable to the property being valued).
Usually a Real Estate professional is hired by a financial institution to conduct a BPO, an opinion of value for a property. A lender or a financial institution may order a BPO for one of the following reasons:
- a homeowner request for a loan modification
- home equity loan
- home equity line of credit
- part of an REO, Foreclosure process
- Short Sale offer
- request to wave Private Mortgage Insurance
How to price a Short Sale ?
Conducting a BPO report for the purpose of pricing a Short Sale listings must reflect not only the condition of the property but the condition of the Market within the past 3-6 month at the most. Pricing a property competitively is imperative in order to generate interest and receive offers.
Lenders are more open to cooperate with the homeowners in negotiating a sale of their property. In most cases, it is in the bank’s interest not to proceed with the foreclosure process and accept a short sale offer if it is competing with the Market.
In many cases the listing agent, overzealous and unprepared to face the Market Conditions prices the property too high and the property receives no offers. It becomes stale and it usually becomes a foreclosure property.
Pricing it too low will determine the lender, after conducting a BPO to reject the offer.
In a Short Sale time is of the essence as the Market changes constantly and 10-15% variation in prices are seen often within one month period. Every offer counts and it takes the same amount of time to get rejected or accepted.
Pricing a short sale too low or sending an offer that stands no chance to get accepted by the lender, only slows down the process as the offers gets put into the system and takes up valuable time and resources.
Before listing your property, have you considered every possibility?
Keep the property. If you are under no pressure to sell, keeping the property might be a good idea if the possibility of carrying the cost exists.
Sell the property and bring cash at closing. If the financial capability exists, this would save a seller’s credit score while taking the expense off their books.
Workout a loan modification term with the lender. The new legislature allows a few loan modification instruments to help homeowners lower their monthly obligations. Please note, a lowering of the principal is not usually a choice. A lender will be however more open to negotiate a lowering of the interest rate for a period of time.
A deed in lieu of foreclosure. This is when the homeowner negotiated to walk from their property before the process of Foreclosure has started. This will save the Foreclosure Process expenses (anywhere between $30,000-$58,000) that the lender would have to pay and has a lesser impact on the homeowner’s credit score.
Short Sale. Conduct a competitive BPO, list the property and present the offer to the lender together to the entire file created to justify the process.
Allow the property to go to Foreclosure. It is usually the worst choice. It does the most damage to ones credit score.
Are you in a short sale situation ? Contact us for a FREE CONSULTATION today !
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