As you are likely already aware, a short sale may be necessary on a property when the debtor can no longer meet the specified payments to pay back the loan for the property. When this happens, the lender may choose to go for the choice of agreeing to sell a property at a value which does not fulfill the outstanding debt. Though in doing this the creditor is agreeing to a loss, it is typically seen as preferable to hounding the debtor for finances that they just don't have. This agreement is known as a short sale.
The compromise is that the creditor recoups most of the value of the loan whilst preventing further losses, whereas although the debtor loses the home, their credit rating is left intact. This is seen as a reasonable way to negotiate the problem of a debtor who might have become unemployed, for instance. A short sale is usually agreed to, provided that the lower valuation of the home is considered by the lender to be reasonable.
This is where the BPO, or Broker Price Opinion, comes in. When a short sale is agreed upon, a broker is requested to offer a valuation on a house that the lender would agree to. If the value offered by the agent is considered by the lender to be very low and does not provide a reasonable outcome, then they could reject the short sale and initiate foreclosure proceedings.
Since the debtor can no longer meet the required payments to avoid foreclosure, it is important that the home is sold as quickly as possible, which would require a price as less as possible. This negotiation between the requirement to sell and the requirement to satisfy the lender requires a fine balancing act, and some degree of skill on behalf of the agent.
One significant thing for the broker to remember is that a full BPO is likely to disclose reasons as to why the value must be reduced, while a drive-by BPO, which gives information only on the exterior, probably wouldn't. If there's internal damage to the infrastructure of a home then any cost of repairs must be covered by the new buyer, which decreases the value of a home.
The broker may also do some research into the surrounding neighborhood. Are schools or hospitals close by? How are the transportation facilities such as buses or subways? What are the crime statistics for the region? What are the neighbors like? These are just some of the factors that could contribute to a decrease in the value of a house and things that could be of huge help in coming to a valuation that the lender would agree to.
Be certain that you communicate clearly with the seller, after all they know the house and the neighborhood better than you do so they might be aware of something that you could have missed. Be sure to investigate any information that they might offer you though or else you might find yourself in trouble for putting forward incorrect information.
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