The Bank Said NO To My Short Sale, Now What??
I submitted a short sale and the bank said no, so what is my next step? Great question!
First of all, it’s important to realize that you’re only going to get 70% of your short sales accepted. That means that 30% of your deals will fall apart. If you submit ten short sales, you will close seven. Knowing your numbers going in will prepare you mentally when the bank does say no. Don’t take it personally; remember, it’s just a numbers game.
The bank may say no for several reasons: high BPO, an inexperienced loss mitigation rep, or possibly a foreclosure sale date that is just days away. One of the most common reasons the bank will say no is because the BPO came in too high and the bank feels the property is worth more than it actually is.
What is a BPO? It means “Broker’s Price Opinion.” When a short sale package is submitted, the bank will send a real estate agent or Broker to the property to judge its value. To insure a low BPO, we like to meet the agent at the property. We take the liberty of giving the agent our complete short sale package. We run comps for the agent, give copies of our pictures, our list of repairs, and walk the agent through the house room-by-room. We want to make the homeowner come to life by showing the agent the property, family pictures, and explain how a low BPO will insure a successful short sale thus giving the homeowner a chance to start over.
Usually, agents and appraisers are asked to value properties at the high end of the scale. Most homeowners trying to purchase a home need top value in order to qualify for the loan. Therefore, it is unusual to ask for low numbers. This is why we meet the agent at the property: to plead our case and ask for the lowest BPO possible.
Assuming the bank said no because of the BPO, our first step is to challenge it and request a second opinion. Our conversation with the loss mitigation rep goes something like this: “My friend is a real estate agent. She ran comps and says the person who did your BPO is crazy. My friend also says the numbers are way too high. She works this neighborhood and is certain about the property values. Does your agent specifically work this neighborhood? If not, he might be steering you wrong. It would be a shame for your bank to take the property at the sheriff’s sale, only to lose money. Why don’t we do the right thing and schedule a second BPO. I’m sure if you choose someone who actually works this neighborhood, that person will agree with me that the property is only worth $___________. Your bank is not in the business of losing money, is it? I didn’t think so. When is the best time to schedule another BPO, today or tomorrow at 5:00?”
The purpose of your conversation is to make the bank question the first BPO. Banks are not in the business of losing money. An incorrect BPO will come back later to haunt the loss mitigation rep.
Once we schedule a second BPO, we do our magic again. We meet the new agent at the property and plead our case. We had a recent deal where the first BPO came in at $295,000 and the second one came in at $215,000. The property was realistically worth $450,000 with a $350,000 balance. We originally offered $199,000. The bank was firm at $300,000. With an $80,000 difference in the BPO’s, the bank lowered its number from $300,000 to $250,000 making the deal work. It was a sweet deal for us. The key was the second BPO.
If, after a second BPO, we still can’t get the bank to see it our way, we pass and move on to the next deal. Your new four letter word is: NEXT. If one deal doesn’t work out, move on. Remember, you will lose 30% of your short sales. This is why we advise our students to work at least ten short sales at the same time. Then when one does fall apart, you’ll have no problem saying ….NEXT!
Hi, there is an element of not telling the complete story to the bank with this approach but you are right, what's the use of a REO if it isn't cheaper than market value? I think banks should price them all at 30% off and get all their full price offers accepted. It would solve the problems and they would have a pool of investors always ready to buy. But 95% of banks now want full price for everything it is ridiculous but they are entitled to that. So it's a catch 22.
BPO, dirty word, the totaly unqualified giving an opinion of value. The REO probably paid $50 or less for that bit of information.
This is a combat situation. You need intelligence and you need amunition and you need firepower, firepower? That's you the great Negotiator.
To combat the BPO, please I am a broker what you just said makes me feel bad but, no matter. You need an Appraisal, a really qualified appraiser and a house inspection by a qualified house inspector. . Submit at least twenty pieces of paper, pictures, comps, the whole works. Full appraisal report. The value of the property after the full property inspection. Way down. The nice part of submitting this information to the REO is that he now has knowledge of all the hidden defects, the sharp edge on the cabinet, the mold growing behind the inlet water line, the cracked ceiling joint, the failed plumbing. Shall I go on? Now you got information. Of course your enemy the REO officer/Loss Mitigator, must disclose all of these terrible things to all bidders.
Now jam your offer forward, short time to accept. Have your financing lined up and remember the magic word. Redifine, the appraisal after acceptance of the offer. The appraiser redifines the appraisal after acceptance and you have a tool to obtain that wonderful standby loan.
Requirements a really good team. The appraiser is one of the members. The captive Contractor who inspects the house from basement to attic to roof etc.
You have now presented the REO/Loss Mitigator with a lot of stuff. His counter offer is not his last, cause the last weapon you use is when you tell him that your captive Contractor is having lunch with a Senior Building Inspector from the County and all this information will be brought to his notice. Good citizen that he is. Besides if you do this offer over lunch you will save money, because the normal REO, bank officer/Loss Mitigator on his way up the ranks of banking, will be getting a little bit sick and nervous. You are saving his --- and, his career.
The above described events are pretty much what we did to Gibralter Savings and Loan a few years back. Mr. Smith the REO and conductor of captive Trustee Sales was their point man. Shortly after this event he went on up the ladder to Vice President, I think in charge of office procedures etc. I sold the property in about 30 days after removing the mold which turned out to be green paint and fixing the plumbing which looked like galvanized pipe but proved to be good copper once we removed the sprayed on white paint. The crack in the joist, turned out to be just a line of dirt, shall I go on?
An Appraisal is an Opinion of the Value of the Property. One persons opinion. No more no less, But that is the Ace that trumps a BPO report by a Real Estate Broker. The Contractors report is the additional evidence necessary to super qualify your offer. Which is of course reflective of true market value. My Client took the money from the sale and bought ten newly completed condo's in West Hollywood, just slightly south of Sunset Blvd. He let them grind and on their income retired. From rags to riches, just because a certain Mr. Smith Loss Mitigator/REO officer extroidinare had defined my client in front of his wife and kids as the Looser of the Year.
We proved him wrong, Cheers Lucius