How does my bank calculate my home's value in a Short Sale?!

Is it time to Short Sale your home!?

Banks use a Broker Price Opinion or BPO for short to calculate your home’s value in a Short Sale . A BPO is a condensed (yes, cheaper) version of a Real Estate Appraisal that banks order from a local Realtor to determine that value of your home. However, since there are no standardized information on each BPO and every bank has their own criteria to determine Value; it’s smart on the part of the home owner to understand what is contained in this report and how it’s developed. And yes, as if your banker was running a popularity contest with the home owners, they will NOT disclose this value to the owners!! So, let’s see how a BPO is developed for your bank as part of your Short Sale process.

The broker/agent who accepts the BPO assignment is required to find at least 3 matching Sold comps and 3 matching Listings with the following selection criteria:

1) Location : All the comps have to be within 1 mile radius of your home. If there are no comps found in this range, they are required to expand the search up to 2 miles and make necessary adjustments due to school district and other criteria that would define the new boundary.

2) Property Type: All the comps have to match the property Type of the subject. For instance, the broker can NOT select a Townhouse as a Comp for a Single Family Home. A Duplex can NOT be used as a Comp for a Single Family home. However a Duplex can be used as a comp for a Triplex or 4-plex, but the values have to be adjusted.

3) Home’s Age: The comps have to be within 5 years of your home. If your home is built 10 years ago, the ALL of the 6 comps have to be within 5-15 years of age.

4) Home’s Living Space: The comps have to be within 300 sqft of your home’s size and adjusted accordingly. If your home is a 3,000 sqft newly built home; a comp with 2,500 sqft of living space can not be used to determine it’s value.

5) Lot Size: Less important that the initial 3 criteria sited; but a home on a 2 acre lot can NOT be used as a comp for a home with 8,000 sqft lot!

6) Floor Plan: Total number of rooms and the ratio between Bedrooms and Bathrooms have to be comparable to your home. But ironically most banks won’t allow more that $1,000 to be used in adjustment for one extra bedroom and $500 for a bathroom which is absurd; but that’ s a topic for a different blog.

7) Amenities: This criteria includes a wide ranges of items such a Wine Cellar, Pool, Solar Panel,….etc and varies with each bank on how much value they would allocate in the BPO report. However, you would be surprised how most lenders will NOT permit large adjustments in this category. For instance, we know lenders who will only allow a $5,000 adjustment for a Pool as if a Pool can be built for $5,000! It’s absurd, but that’s how they want their BPO’s adjusted.

Get your Free Home Value Request to avoid negotiating with the banks in the dark.

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