A new income opportunity has appeared on the horizon recently for down-and-out real estate agents who are in desperate need of income and this has led to one of the biggest scams in the real estate industry today. A broker price opinion (BPO) is ordered by the bank or mortgage lender who is looking at doing a short sale on a property where the borrower is upside-down on their mortgage and they cannot qualify for (or the bank is not prepared to do) a loan modification. The BPO is done by the Realtor for $ 40 – $ 60 (almost doesn’t cover their gas and car expenses) and is used as the basis (for the bank) to negotiate with potential new buyers.
These Realtors are obviously not making money selling real estate and are often some of the most inexperienced individuals in their profession trying to make a buck or two. They sometimes are hoping to create a connection with the bank so that the can get their REO listings for themselves, which are really the only deals being closed right now. So from the getgo they are trying to please the bank which results more often than not in the BPO coming in at a much higher price than the real market value of the property.
The Realtor marketing the property for the owner then gets offers based on the real market price, which in almost all cases is much lower than the infamous BPO. They try and negotiate with the bank, get nowhere, there is no short sale, the bank then forecloses on the property, thinking they can get more than the offer. These important financial decisions being based on a $ 40 BPO done by someone that is inexperienced.
The property value declines even further as the banks don’t maintain the properties at all after the foreclosure or the original owner, angered by the bank’s posture regarding the short sale, strips the property of all it appliances, the pool pump, the ceiling fans, the water heater and even sometimes the air conditioning unit and wall cabinets, so the house is no longer marketable as no lender will finance properties in this condition.
Can you blame the homeowner? Maybe, but they are going to have to fight for the next 10 years with a foreclosure on their record even though the bank got offers at the real market price.
A price calculated by a very experienced professional – the buyer’s Realtor – and often backed up by a real appraisal performed again by a professional appraiser at a cost of around $ 350. But the bank blindly looks at the $ 40 BPO!
Here is an example of how such a transaction looks financially:
BPO Value – $ 200,000
Buyer’s Realtor Estimate – $ 165,000 – $ 175,000
Highest offer submitted – $ 172,000
REO Price 6 months later – $ 125,000
REO sale – $ 115,000
So the bank gets $ 57,000 less than the original offer six months later. They have the costs of foreclosure (at least $ 15,000) and then the upkeep of the home they now own (HOA fees, taxes, general maintenance etc.). So all in all they lose approximately $ 75,000 compared to the original offer all based upon their faith in the unprofessional BPO. Everyone I know in the industry (Realtors, loan officers and appraisers) is all shaking their head in disbelief. They are also losing money as the deals they are working with fall through don’t pay them a dime.
And yet the government is pumping billions of dollars into these financial institutions, which is coming from the taxpayers who are in turn being screwed and put out on the street by the same banks. HELLO, ANYONE HOME? To make things worse the REO homes that are now in terrible shape are being bought for cash from wealthy investors and not the poor homeowners who now have a foreclosure on their record and cannot get a loan (from the same bank that just screwed them!).
Some of my more savvy clients are looking at some form of recourse against the bank that hardballed them on the sale of their property based upon a $ 40 BPO. In my view, the government should impose a substantial fine on the banks, which can be based on the difference between the highest original offer the bank chose to decline and the REO price the bank finally receives. At least, the bank should be forced to remove the foreclosure filing with the credit agencies and give some sort of restitution to the original homeowner.
Or the owners of the banks should fire the management that manage this mess and put in people that at least have some semblance of a brain in their head. Oh, yes, but the bank owners are now the government. So should we fire the government?
Author – Colin Buckingham
Global Internet Entrepreneur
Colin Buckingham is a global Internet entrepreneur who believes a great solution for many of today’s economic woes is to go out and start working for yourself. He also believes one of the cheapest and most efficient ways to start out on your own is to join more than one MLM company. Colin has spent the past ten years as a financial adviser and has seen many of he problems people face financially many of which could have been resolved with just a small additional income very month. His wife Barbara is a Realtor with 20 years of experience in the business so he is constantly being exposed to the real estate issues of the day.