Blown away by their CMA?

Submit your own Comparable Market Analysis to increase your chances for

Short Sale Approval!


Mortgage foreclosure is big business. With big business comes the opportunity for private gain. For the lenders who impose and collect late and related foreclosure fees. For the lawyers who represent lenders. For title searching and insuring companies. For the forced placed homeowners insurance policy providers. For the field servicing companies that provide data in the form of drive-by inspections, mortgagor interviews, and BPOs. For real estate brokers who may list and sell preforeclosures, and, ultimately, who list and sell REOs.



A common obstacle in realty transactions, including and perhaps even more critical to successful short sales, is the perception of Value. In many cases, the mortgagee's perception of value is greater than yours, and because of that, they can't facilitate the Seller's acceptance of your Offer. How do they (mortgage loan servicers) arrive at their perception of value? And what can you do to change their perception of value? I'll get to that a little later.



Mortgage loan servicers asked to consider an application for short sale rely upon opinions of value offered by others including tax assessors, real estate brokers, field inspectors, and appraisers. Their first tangible indication of value is the value on the original mortgage loan application supported by an origination appraisal.



As we know, origination values can be subjective and are occasionally influenced by an appraiser's desire for repeat business from the hiring mortgage broker, a broker whose livelihood depends upon fees generated from loan closings. We've all read about and some may have first hand experience with appraisals whose opinion of value had been inflated at the direction of the Client.. Even though this doesn't happen often, it happens often enough to warrant that a 'review appraisal' be performed on any property whose appraised value is challenged.



Historic values, subject to market conditions, are expected to change.



For an intelligence update, the mortgage loan servicer will rely upon a Broker's Price Opinion, or BPO. A BPO is a written estimate of the most probable sales price of a property provided by a licensed real estate broker with experience in the specific locality of the subject property. Value of the subject property is estimated by comparing like properties that recently sold and adjusted for differences. A BPO is often provided as a means to establish a listing price for a property.



Once a mortgage loan is in default (sometimes when the first payment is missed or late), the mortgagee will order a BPO, and may order that a BPO be performed every month that the loan remains in default. Who do they use to prepare the BPO? They don't simply call a real estate broker from the yellow pages... and the selection is not as random as you might think. In many major mortgage loan servicing organizations, an order is placed through their corporate designated bulk BPO provider, usually a national real estate organization or clearinghouse with local (to the property) referral affiliates. For a nominal fee upon completion ($25 to $50) the local affiliates provide the BPO as a subcontractor to the national clearinghouse who is paid by the Client (mortgagee).



Not unlike political lobbyists who represent their corporate employers seeking the passage of favorable legislation, the real estate services industry lobbyists wine and dine potential Clients. Clients may include VP's or operation managers of major loan servicing organizations. Think about it for a minute. BPO's can range in cost from $50 to $100, more or less depending upon your area. If each of the top 10 mortgage loan servicers have a 5% delinquency rate and each services an average of 75,000 loans....that's close to $2,000,000 per month spent in BPO's. Many times, the companies that provide the BPO also get or refer the REO listing as well as the field services contracts.... (winterizations, lock changes, board ups, gr***** mowing, snow removal, etc.) So there is a lot of money at stake. It stands to reason that competition for BPO business is keen. Much like any other type of sales rep, bulk BPO providers lobby for business. And, they start at the top of the loss mit food chain, often making unrealistic claims or promises too good to be true...



The bulk BPO providers boast that their service is faster, cheaper, and better. Better?



If two competing, bulk BPO providers are asked to submit representative BPOs on an isolated portfolio of non performing loans, and offer essentially the same estimates of value (as it should be) then their respective promises for superior customer service and low cost should be the deciding factor to win the lucrative service contract. But, if one bulk BPO provider consistently suggests a greater value than it's competition, in all likelihood, greater consideration will be given and the contract awarded to the BPO provider that indicates that the lender's net recovery in a foreclosure process would be greater.



Once the contract has been awarded to the 'clearinghouse', local affiliate brokers 'compete' for the right to perform individual BPOs for the clearinghouse... They compete by promising a quick turnaround at low cost. Why bother? Because if the property becomes an REO, the broker providing the BPO knows that he/she will likely get the listing assignment for that REO, and the commission for the eventual sale. The 'grunt work' for individual BPOs can be prepared by virtually anybody under the supervision of a broker (broker must sign the BPO) including newly licensed trainees, &/or folks with little or no knowledge or experience recognizing and/or quantifying deferred maintenance, or in assigning values to property. "Can you do it NOW?" seems to be a primary prerequisite.



My point? I suggest that the majority of BPOs are flawed in that they do not accurately reflect a property's as-is, fair market value. Perhaps by design in that promises were made ("Our Brokers will get you top dollar for your REO!") and inflated BPOs are used to support those promises. Perhaps by brokers who aren't inclined to help the mortgagee reduce it's preforeclosure inventory via 'broker less' preforeclosure, and/or preforeclosure short sales but would rather have the REO listings. Perhaps by indifference in that the broker's agent who is assigned the task of performing a BPO with little or no compensation has no interest in providing anything more than a cursory opinion. Perhaps by lack of expertise and an inability by the broker's agent to recognize conditions that can exact an adverse impact upon marketability.



Let's assume that the BPO is, or will be flawed in favor of the mortgagee's position. Part of YOUR role in the short sale process will be to influence the mortgagee's perceived value of the subject property. To do that, always name yourself (or a member of your Short Sale Team) as the person to contact for access to the subject premises. When you meet the broker, broker's agent, or the appraiser at the subject premises, you can introduce irrefutable information used to influence their opinion of value.



You can do that by 1) diplomatically questioning the applicability or suitability of the information contained in their BPO, and 2) providing reliable information that would not ordinarily be included in a BPO or an appraisal. Interior and Exterior photographs that indicate cosmetic and/or structural problems is essential. Estimate for repairs (worst case scenarios including termite, potable water testing/treatment, and remediation for mold, lead paint, and asbestos) can be used in support of your devaluation efforts. Empirical, comparable market data including, but not limited to Original Listing Prices vs. Closed Sales Prices; DOM (days on market) for comparable properties; and differences in physical condition of properties used to predict the subject's most likely sales price. Newspaper "police blotter' reports on specific neighborhoods can suggest an area is or will soon depreciate in value... or has experienced a decline in market activity. Unemployment projections/layoff notices are also used as indicators to forecast local real estate markets. All these factors can be used to suggest that the as-is value of the subject property may be less than the mortgagee has been asked to believe and accept as true. Negotiation includes the exchange of information. (I once included a videotaped walk-thru of a subject property....)



Sometimes, in the face of conflicting information and if the amount of the discrepancy warrants, the mortgage loan servicer will order a full appraisal. An appraisal is a valuation or estimation of the value of a property conducted by a disinterested person with suitable qualifications. Generally, value for single family properties is based upon a review of recent market activity using sales of comparable properties as a basis and then making value adjustments based upon the comparison of comparable property to the subject property. Commercial, income producing and special purpose properties may have their value estimated using methods other than the comparable market approach.



If an appraisal is ordered, you (or a member of your Short Sale Team) should be the contact person, meeting the appraiser at the site and providing access. You (or a member of your Short Sale Team) must have a handle on market data, and be able to accurately prepare your own CMA (comparable market analysis) used to influence an appraisal, &/or refute a flawed BPO, or an unfavorable appraisal. At this point, as you hand to the appraiser the data (or report) you have devised in support of a reduced valuation, "I've been through this house from top to bottom, took some pictures, and have had estimates prepared by local professionals. I've also assembled comparable sales data that I feel is appropriate. You should also know that this property is facing mortgage foreclosure and the Seller must sell ASAP. I'd like to help him avoid Sheriff's Sale/Trustee Sale and buy it before he loses it. I feel that this information supports, and hope that you will agree that this property in it's present condition is worth $X."