you thought the BPO was going to come in around $65,000 ... You would take 82% of THAT number, which would be $53,300. The lender may very well accept $53,300 based on their perception of the value of the property.
* FHA loan: This isn’t a scientific grading scale. It should only be used as a guideline. You can and will
have other factors that make you stray from this. If you are dealing with an FHA type loan or any government backed loan, they are going to recoup a set amount if the foreclosure is completed. For example with FHA loans, the insurer will basically guarantee the lender *82% of an FHA Certified Appraisal amount. Notice I did NOT write BPO amount. For these loan types you will need an FHA Certified Appraisal for the lender to consider in their evaluation process on the property. The BPO will not suffice on these types of loans. You can massage the numbers 1-2%, but *82% is listed in their guidelines.
*Note: The percentages are updated guidelines as of 1/15/09:
FHA requests:
Net 88% first 30 days a property is listed Net 86% for a property listed 31 - 60 days Net 84% for a property listed 61 - 90 days.
•All FHA loans are insured by the federal government.
•As long as the lender follows FHA guidelines, they are guaranteed to Net the percentages shown above for the “as is“ or appraised value.
•FHA-type loans will not use a BPO. Instead they will require an FHA Certified Appraisal. Use the same techniques on the FHA Appraisal that you would for a typical short sale deal.
Memorizing the Percentages
For example: If an appraisal came for a VA loan for $200,000 the lender would consider accepting $164,000 for it. Keep in mind, the $200,000 may or MAY NOT be the actual value of the property, but it will be the value the lender uses to determine how much they can discount. In this example that would be 82%.
Here are more percentages you need to memorize
* VA 82%
* FHA:
Net 88% first 30 days a property is listed
Net 86% for a property listed 31 - 60 days
Net 84% for a property listed 61 - 90 days.
* Freddie Mac (FDMC) 88 - 92%
* Fannie Mae (FNMA) 85-88%
* Conventional Loans 80% (no set limit)
IMPORTANT: Understand that these are NET percentages to the bank. If you have your offers padded with things like Realtor commissions, closing costs and additional fees, these need to be included for the final NET settlement.
SECOND EXAMPLE: The BPO on one of your deals comes in $100,000. Offers that may be accepted based on the above criteria would be:
*VA 82% = $82,000
* FHA
Net 88% = $88,000 first 30 days a property is listed
Net 86% = $86,000 for a property listed 31 - 60 days
Net 84% = $84, 000 for a property listed 61 - 90 days.
* Freddie Mac (FDMC) 88% - 92% = $88,000 - $92,000
* Fannie Mae (MNMA) 85 - 88% = $85,000 —$88,000
Something else to consider is some LOCAL banks, usually the smaller ones, will almost always NOT ALLOW more than a 10% -15% discount off the property depending on the amount of repairs needed to fix it. Local banks tend to be more conservative in their approach to discount the property. This is partly due to the network of local affiliates the bank can call to get more than one opinion of repairs needed or value of the property.
OK... now you know more than 90% of Real Estate investors about the BPO, let's keep moving and discuss the major differences between an appraisal and BPO.
The Major Differences between Appraisals and BPO’s
-A BPO is done by a real estate agent or a real estate broker, who are usually inexperienced.
-An appraiser is usually hired when a bank wants to foreclose. They are more experienced, and therefore, usually harder to influence. You will need to do different things to influence an appraiser, because they are more thorough in their work.
-The main differences are in the amount of liability, why each report can be used, the cost to conduct each report, the amount of detail in the two reports, and how they find comps and make adjustments.
-Licensed Appraisers are governed by state requirements. So, even though a BPO must carry Errors and Omission insurance, the liability for an appraiser is much greater and more enforceable.
-A BPO is a required to be a licensed Real Estate Agent, Broker, or Appraiser who possesses an active license. They must be in good standing within the state in which they perform their services. Each state has their own set of regulations and standards by which a BPO can be employed, so it would be a good idea to search these regulations by the state specific to you.
Paying for a BPO
The BPO work doesn’t pay much money at all. In fact, the average BPO, who does strictly BPO work, can make anywhere from one thousand to ten thousand dollars a month! The BPO field has become quite competitive over the past few years. Thus, why many lenders that outsource their BPOs will only stick with the BPOs they are familiar with and will rarely go to a new vendor. The barrier of entry can be tough for new agents.
Nearly always, a BPO will be less expensive than a APPRAISAL, because the amounts of information that goes into the report, and the type of reports they are required to fill out differ, being that a BPO has less work to do, and the appraiser has their hands full. The appraiser is going to fill out much more paperwork than a BPO agent too.
Take a look at this great resource Online to see some different types of BPOs, as well as the charges associated with them. It’s definitely recognizable the difference in an interior and exterior type BPO price.
http://www.bposonline.com/order.aspx
Here is something to keep in mind. The BPO agent will only make a percentage of these charges. Other factors determine how much they will be paid, such as how quickly he BPO can be completed and the distance to travel to take photos of the property and how desperate a company might be to get a BPO completed for their client. They usually
