Earlier this year, I took a listing for a home in the Palisades, a newer neighborhood in southwest Charlotte that ended up being a short sale.  The situation was classic: the neighborhood had declined in value, builders cutting profits, the seller had a HELOC far exceeding the market value of the home, and a substantially decreased income.  Still, I took the listing as the process is straight forward with both banks suffering some loss to ultimately sell the home for more money than through foreclosure. 

Within a few weeks, we had a offer and I started to negotiate the offers through both banks at the same time.  The second mortgage, being a HELOC, had unreal expectations for what they would release the lien for ($30,000) however were willing to working something out with the seller because if the home ended in foreclosure, they get nothing.  The HELOC’s broker price opinion came in at market value for the home ($335,000) and all that was needed was a response from the first mortgage.  The first mortgage, Chase, ordered a broker price opinion however theirs came in at a whopping $459,000.  Not only was that price $124,000 above fair market value for the home, it would not have been necessary to short sale the home as the mortgage balance was only $390,000.  So how did this happen?

Banks order a broker price opinion (known as a BPO) to determine what the fair market value of the home is.  From that, they consider the offer put before them and so long as the offer is within a percentage of the market value, the sale is approved.  The BPO is supposed to be handled by a local real estate professional and is occassionally compensated a nominal fee.  In the past, the banks would order two BPO’s per property so that they would not rely solely on just one person’s opinion of the market.  However as of late, the banks are only ordering one value per property and usually that agent will be the listing agent if the sale falls through and the home ends up in foreclosure. 

Enter agent Gary.  Gary isn’t a really successful real estate agent judging by his past sales.  In fact, agent Gary hasn’t sold a home in over three years and that home was $80,000.  To me, this does not qualify agent Gary to be an expert on real estate.  However agent Gary has a pulse, a pen, a camera, a car, and a lockbox key so agent Gary is now a doing BPO’s. 

 You see where this is going right?

Agent Gary does such an amazing job analyzing the market that he compares an ordinary tract-built home to a custom home and assigns a value outside the market.  If agent Gary didn’t have his head…., he would have seen that the homes in the neighborhood are all selling for 20% less than their original sales prices, builders are reducing their homes 40%, and the relocation companies are now selling homes at bank-owned prices.  Agent Gary could have signed up for a free trial of RealtyTrac and discovered that 8 other homes in the neighborhood were being offered at a foreclosure auction in the next couple of months, which would only depress prices further.  However, he didn’t do any of that and so the value that was assigned was 14% above the price when new, $75,000 over the same home but with 2,000 more sq. ft. and $100k more than any other sale in the neighborhood.  At that value, my listing would have been the ONLY home to have appreciated in value since new.  You’ve got to admire his optimism. 

The bank holds firm to their BPO value, the deal dies and many months pass with the home listed at the much higher price.  No showings, no inquiries…it’s just another over-priced listing.  Finally, I convince the seller to give it one more shot at the fair market value in the hopes that enough time has lapsed that a new BPO would need to be ordered.  We receive another offer, it’s ratified by the seller, and sent to the bank in the hopes that the mistake of the past could be corrected.  The file was even assigned a liaison to help shepherd it through the process, assuring us a quick turn around.  Unfortunately last night, word came back from the investor (Freddie Mac) that they are holding to their six month old value and killed the sale once more. 

So with a buyer gone and foreclosure inevitable, the seller is now faced with no options.  The next time that you hear that Freddie Mac needs a bailout due to the mortgage crisis, just remind yourself of this true story.  We had two people that wanted to buy the home at a fair price - not a steal but fair - a seller that did EVERYTHING to sell the home but you had an agent and a bank that said no.  Unfortunately this time, my team, my seller, the bank, and the two buyers were all screwed by a BPO.

Charlotte NC Homes