Pre-Foreclosure Guidelines and Shortsale Negotiations. Deciding On A Course of Action What are some of the typical questions we hear from home owners considering a short sale? Q: How does the bank decide if they will take the reduced short sale amount? A: The department that handles the short sale file is called Loss Mitigation so that’s exactly what they do. By the time your loan gets to their department they know they are going to take a loss; it is just a question of degrees of loss. They have a computer program that estimates what it will cost to foreclose on the property, maintain it after foreclose, put the house on the market and rehab the house. If they think they can take the house back, fix it up and make a profit to defray their loss, then they will turn the short sale down and take it to sale at auction. They compare the loss if they short sell to our buyer to the loss (or profit) if they sell the house at auction. The bottom line is that it depends on what is offered compared to what the house is worth. The bank will do two valuations: the first is a BPO (Broker’s Price Opinion) and the second is an actual appraisal.
The BPO is nice because it not only shows the last three sales, but also similar properties that are active on the market for sale. For example, just because the last three homes sold for 200K, and the appraisal supports a price of 200K, doesn’t mean the bank will get 200K on this house. The house is only worth what a buyer will pay. And how much will a buyer pay? As little as possible, especially in a declining market, so the banks really do need to look at what else is available for sale that’s comparable. If a similar house is available for sale for 150K, then no one cares what the appraiser says, the bank will not get 200K if there are no buyers for that house at 200K regardless of what the appraisal says. The down side of these BPOs is that any realtor can do them, and realtors are not trained appraisers. Some realtors that do these BPOs are highly qualified and trained individuals, but many are just non-producing realtors looking for a way to make a little extra money. How much of a grip can a non-producing realtor really have on what things are selling for and what buyers are willing to pay for real estate? The appraisal carries a little more weight, but only looks at the last three sales and does not go into much detail about asking prices for active listings, so quite often the appraisal supports one purchase price, while the actual market value is lower.
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