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!