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How Does the Bank Determine the Value of My Home in a Short Sale?

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

CalBRE #01871795

Comment balloon 12 commentsTni LeBlanc, Realtor®, J.D. • March 20 2011 11:31PM



Good explanation for distressed homeowners.  I also recommend to my sellers to get an appraisal before listing it; it helps when negotiating with the servicers and getting short sale approval before offers come in.

Posted by Anja Kerstens, GRI, CDPE, CHS, ASP, Selling Silicon Valley Real (Coldwell Banker Residential Brokerage) over 8 years ago

$35 for a BPO? That's big bucks! I just read an ad on craigslist where a BPO company is paying agents a wopping $10 for each report completed. What a markup! No wonder BPO's have such wild fluctuations. Grrrrrr!

Posted by Paul Caloca (The Papas Group (DRE #01766524)) over 8 years ago


Excellent information! I did not realize that the agent selected for the BPO is barely compensated for their work. But it does explain to me why about a year ago a lady that I know selected for the BPO (who had been doing it for over a year) asked me to go with her (I had to drive), so that she could take pictures (she asked me to take the pictures with my camera because she liked my photos on my brochures) and then she asked me to upload them into the system (because I could type faster than her).

Fool or friend? I did it as a friend and saw her previous photos - they were AWFUL!

It makes me wonder now who selects the agent to do the BPO's and what are their qualifications.

Posted by Patricia Feager, MBA, CRS, GRI,MRP, Selling Homes Changing Lives (DFW FINE PROPERTIES) over 8 years ago

Hi Tni - Every short sale considered by a lender should be mandated to use an appraiser.  It is our that HUD is blowing on these short sales.  People forget that it is our taxes that are being used to keep Fannie and Freddie afloat.

Posted by Conrad Allen, Webster, Ma, Realtor (Re/Max Professional Associates) over 8 years ago

Tni....once again, an excellent explanation.  I like the idea of the Seller having a pre-emptive appraisal.  I wish all short sale Sellers would engage experienced short sale agents like yourself.

Posted by Christine Smith, Exclusive Buyer Agent & Attorney, Canton, MA (Buyers Brokers Only LLC - www.BuyersBrokersOnly.com) over 8 years ago

Tni- This is true- Short sale applicants need to understand how the current market value is arrived at, and not be intimidated when they have a legitmate hardship reventing them from making thei r mortgage payment obligations. Also important to remember is they are not alone- millions of people are inthe same boat they are. It does not mean they are bad people- 

Posted by Allison Stewart, St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904 (St.Cloud Homes ) over 8 years ago

BPO's are definitely, in my opinion, less than reliable.  Would be one thing if they were done by agents who were active in the market and understood what they were doing (for all intents and purposes...a CMA).  The sad thing is that most BPOs are done by underemployed and not very active agents.  And the banks think they will get a reliable value out of these people?

Posted by Chris Ann Cleland, Associate Broker, Bristow, VA (Long and Foster REALTORS®, Gainesville, VA) over 8 years ago

Sellers have good reason to be skeptical of the lender;'s motivations to accept a short sale.  I agree that it would definitely be worth the $350 for the appraisal to fight the $35 BPOs!  Great post.

Posted by Karen Feltman, Relocation Specialist in Cedar Rapids, Iowa (Cedar Rapids/Iowa City, IA KW Legacy Group) over 8 years ago

Anja - I think that is good advice.  The more professionally you approach a short sale -- the more professionally the bank tends to treat your file.  Getting an appraisal can smooth out some of the bumps to the process.

OK Paul - I HOPE you are kidding -- you are really scaring me.  It just underscores my poitn I suppose - short sale sellers should not allow one of their biggest financial decisions to turn ona cheap report - why the banks are willing to do that I'll never know.  A good BPO takes about 45 minutes to one hour when you are experienced at doing them - not counting the time to go out to the property.  How long are they spending on that cheap BPO?  I do about 2 BPOs a month it helps me keep track of what is going on behind the curtain and to see what BPO agents are up against.  

Patricia - She probably couldn't afford the gas, a new digital camera or the DSL to upload them.  Sad but true.  I don't believe lenders should be allowed to rely of BPOs the way they do.

Conrad - I agree this is work that should be going to appraisers. I don't see much of a benefit to agents doing this type of work poorly for poor pay.  Let it go where it should.  To the appraiser community.  At the very least agents should be recommending appraisals on short sales where the property is unique because they know there is very little chance that a BPO agent is going to know how to or will take the time to get it right.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 8 years ago

Thanks Christine - I think handling the short sale professionally makes a difference in how the lender treats you.  If you hand in a perfect package on day one that has everything they need and answers every question -- you will probably have a smoother process to approval.  In any event, it can't hurt.  The easier you make their job - the better.

Allison - Absolutely. So many good people in a bad situation these days. 

Chris Ann- Very true.  And some are trying to piece together their entire income on BPOs and covering HUGE areas.  An appraisal can protect you from a haphazard BPO from an overworked and underpaid BPO agent.

David - Yes, cheers!  You have to take control of your own destiny as a short sale seller.  You can make your situation better by presenting a professional report.

Thanks Karen - I agree as well and think it is money well spent. 

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 8 years ago

I think all lenders should follow the FHA procedure fo all laws. Appraisal immediately after verification of hardship and a time-scale percentage of appraised value that would be accepted.pumm

Posted by Maya Swamy, Ph.D. Long Beach, CA - fundsavailable.com (Funds Available) over 8 years ago

Dr. Maya - There is so much they could do better on valuing assets on short sales.  Sometimes it seems that they are not acting in good faith.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 8 years ago