I just finished speaking with a negotiator and was a little surprised when she didn’t seem to understand why I was forwarding her an appraisal. So I thought I would share here for anyone that might be newer to short sales.A key part to any short sale is the bank’s understanding of its value versus the offer price submitted. Too many listing agents have seen deals implode because of a bad Broker Price Opinion (BPO). The BPO is the number the bank will refer to when reviewing their loss overall. If a BPO comes in at or lower than your offer price then wonderful you should be fine. But if you receive a BPO value that is much higher than your offer price it could kill your deal. If your contract price is $300k but the BPO comes in at $350k the bank may look more favorably to a foreclosure.The best way to try to avoid this issue is to have the buyer complete their appraisal before the BPO becomes an issue. I understand many of you are saying that’s not likely to happen because the buyer won’t spend money until the seller’s bank(s) approve the sale. Well a short sale needs all parties to work together to get them done. Find a way to have the seller escrow some money to reimburse the buyer if the sale is denied by the bank or the terms returned are unacceptable to them.So when you get your appraisal you have 3 options:
Appraisal Value: HIGH.Do not forward the appraisal to the negotiating bank. Obviously a high appraisal shared with the seller’s bank(s) would have them wanting more money.
Appraisal Value: EQUAL to offer price.Forward the appraisal to the bank(s) to confirm your offer price and to offset any high BPO returned to the bank.
Appraisal Value: LOW to offer price.Forward the following to the seller’s bank(s)-Contract addendum showing all parties agree to the new lower sales price, matching the appraised value.-Update HUD-1 to match the new sales price, appraised value.-Copy of the full appraisal-Detailed cover letter/email explaining the price adjustment to match the appraised value.
You will be amazed at how much junk is cleared from your negotiations when you have a buyer’s appraisal in hand before the BPO comes in to play. It make take some smooth talking to explain the value to the buyer agent/buyer but I promise this is in everyone’s best interest. Also when the appraisals are FHA or VA they stick with the property for 6 months (actually I think they just reduced that to 4 months, so confirm). This is a negotiating strength when you can advise the bank’s negotiator that if they do deny your offer that any following offer, including that after it is foreclosed, with get the same value returned for the appraisal. Best of Luck!