Sometimes banks seem cooperative when handling short sales and other times they don’t seem to want to budge from a certain price level – even if that price is above market value. Let me give you a real scenario so you can see this phenomenon at work and also how a BPO and appraisal fit into the story. I’ve included some tips below too.
Real Short Sale Scenario: The bank has stated they’ll accept a price for a Sacramento property at $200,000 based on a BPO. A “BPO” is a “Broker Price Opinion,” which is a valuation by a real estate agent (broker) of the subject property. This can be done from a desktop or a full interior or exterior inspection. In this case, I’m not sure what exactly was done or when the BPO was completed either, but the Listing Agent trying to sell this property ordered a full appraisal from my company to help show the bank what true market value looks like. The hope from the agent’s standpoint is that the bank will budge on their price. This particular agent orders appraisals from me regularly, so obviously this bank listens.
BPOs and Appraisals: Let’s back up for a second. Sometimes banks are ordering both appraisals and BPOs behind the scenes so they are equipped to make decisions about their inventory. The bank mentioned above is not ordering appraisals though, so each bank obviously has its own practices. Clearly banks want to minimize their losses, so they don’t want to accept an offer far below market value (well, you’d think). As an appraiser, I have banks hire me directly to help them decide on whether to accept an offer or not. In these cases my appraisal has nothing to do with the buyer or the buyer’s loan either, but it’s all about the current loan on the property (loss mitigation). On the other side, I do appraisals for real estate agents and home owners who are trying to doing a short sale. They hire me when the bank is seemingly out of touch with the market and only willing to accept offers far above real market value. Maybe the bank is relying on bad information for pricing or an outdated BPO or appraisal?
Crunching the Numbers: Put on your appraiser hat with me and look at the graph below. Does $200,000 maybe look high based on all recent model match sales and listings? The last sale above $200,000 was in 2008. The most recent sales are right around $180,000 or below, and the most recent listings are between $150,000-$160,000 with a clear trend downward. Whenever you see listings priced lower than recent sales, it could indicate aggressive pricing, a further decline in value, slow Winter months maybe, or possibly some external factor (economy, job losses, environmental disaster…). It’s always important to ask why listings are priced lower than the most recent sales, and decipher what that says about market value – if anything. In this case, the most recent sale in January actually had a contract date back in October, and the market has since declined a bit and softened due to Winter months. The current listings are actually a pretty good example of what buyer’s are willing to pay right now (slightly agressive pricing though).
If you’re in a situation as a home owner where you are trying to do a short sale, but the bank seems to not be cooperative to lower the price (if it’s legitimately too high), here are some tips for you.
- First off, make sure you are working with a local real estate agent. It’s nice that your cousin in San Diego is a Realtor, but does your cousin understand the local market in Sacramento? No offense to your cousin of course. 🙂
- Make sure your agent has knowledge of the market area and a proven track record of short sale success. Everyone and their mom is a “short sale expert” these days. Just make sure your agent is equipped to really work hard to get results. There are so many good agents out there, and if you’re in the Sacramento area, I’m happy to point you in the right direction to someone trustworthy.
- If the bank absolutely won’t budge on their price and you’ve exhausted other resources, it may be worthwhile to order a full appraisal to help illuminate true value. Think about this and talk with your agent about this option. Let me know if you have questions too.
- Local agents say that short sales have been far easier to negotiate these days in comparison to several years ago. However, keep in mind that they are still difficult in many cases. I don’t want to deflate your optimism, but it’s important to be realistic that short sales don’t work out every time. Just do your best to really exhaust your options, work with a great agent, and don’t lose hope – no matter what happens.
What do you think? If you’re going through a short sale right now, I’d like to hear about your experience. Do you have any other tips you’d give to home owners about how to help the short sale process go as smoothly as possible?