How Does the Bank Determine the Value of My Home in a Short Sale?
This is a common concern among potential short sale sellers. How will the bank decide what my home is worth? Are they going to look at what I owe to decide what the home should sell for? This is a question I get a lot from short sale sellers who are severely underwater. They think that they owe so much that the bank would not possibly approve them for a short sale. This is a misconception. There are some factors that may affect your bank's willingness to accept a short sale of your home. But, the fact that you are $300,000 underwater vs. $30,000 underwater is not generally speaking a deal breaker. Once the bank determines that you are eligible for a short sale, the inquiry should then turn to determining the market value of your home.
In a short sale, the bank will typically order either a Broker Price Opinion (BPO) or an appraisal to determine the value of the home. Most banks use BPOs. The use of BPOs is the source of much controversy among short sale listing agents, short sale sellers and appraisers. Appraisers often object to BPOs and believe that only an appraiser can give an accurate depiction of value. Short sale listing agents often object to BPOs because some BPO agents are also REO (foreclosure) agents who hope to obtain a foreclosure listing if the short sale is unsuccessful. Sellers sometime object to BPOs as they learn that the agents selected to do BPOs receive little compensation (sometimes as little as $35 per report), work in geographic areas beyond their expertise, and are given quick turn times. And as a result, it is no surprise that BPO values vary widely and are often contested. Some banks have tried to compensate by ordering multiple BPOs to try to insure that they are getting an accurate value range.
I believe that short sale sellers can improve their chances of a proper valuation of their home by ordering an appraisal of their property either before it is listed as a short sale or after they receive an offer. I highly recommend obtaining an appraisal preemptively if the property is unique. And, of course, if the bank has valued a short sale property incorrectly an appraisal is an effective way to dispute an inaccurate valuation. The bank does not have to accept the value of that appraisal but it is difficult for a bank to argue against the value set by a certified appraiser when they are relying on a couple of $35 BPOs. It can definitely change the conversation with the bank and make the determination of value a smoother process for all involved.
If you are considering a short sale of your Pismo Beach CA, Grover Beach CA, or Arroyo Grande CA home, you should seek out an experienced short sale agent to guide you through this process. There are many pitfalls that can be avoided with the right upfront advice and approach. If you would like a short sale consultation, please call my office today to schedule one at (805) 938-9950.
Tni LeBlanc is an independent Real Estate Broker, Attorney, Short Sale Agent and Certified Distressed Property Expert (CDPE) serving the Santa Maria, Orcutt and Five Cities area of the Central Coast of California.
*Nothing in this article is intended to solicit listings currently under contract with another broker. This article is not legal advice - it is for informational purposes only. Those considering a short sale are advised to consult with their own attorney for legal advice, and their tax professional for tax advice prior to entering into a short sale listing agreement. Not affiliated with the government. A lender may refuse to change a loan.
Copyright © 2011 Tni LeBlanc *How Does the Bank Determine the Value of My Home in a Short Sale?*
Tni LeBlanc, Broker
(805) 878-9879 mobile/text