If you invest in Short Sales or have ever thought of doing so, one of the first acronyms you will learn is “BPO”. That simply means “Broker’s Price Opinion”. I have been involved with real estate long enough to hear many different thoughts on the BPO. I have heard the process of affecting the BPO as “influencing the BPO” and the more PC version “educating the BPO”. Well I am writing this today to let you know about a recent conversation I had with my brother. It all stems from the recent launch of DC Fawcett’s “Virtual Short Sale Investing Blueprints”.
I want to preface what I am about to say that I have not yet practiced this new method. And I am not saying that DC is wrong in the way he teaches. I just want to offer a different spin on the BPO process.
I would also like to say that this conversation again was with my brother. Graham Treakle has been a short sale expert for many many years. He is responsible for me being where I am today. Graham is responsible for many successful investors across the United States. Graham, besides being my brother, is a very trusted and well respected figure in the industry.
The other day after I was reviewing DC’s materials and speaking about the investment philosophy with my brother, we had a very enlightening conversation. Graham also offers a similar program to DC’s with a few different spins.
Anyway, DC teaches that you get the high-end property under contract and remove it from the MLS prior to educating the BPO. Then, once you have an accepted short sale offer, you list it back in the MLS at a quick-sale price. You do this because you do not want the current list price to play a factor when an agent is conducting the BPO. If it is listed at X dollars, the BPO will come in at X dollars.
I have not yet reviewed DC’s full course…it is in route to my front door as we speak. And before I go against what DC teaches, let me say that I am sure his method works. In fact, I think DC has an excellent program and would like to congratulate everyone who invested. As you can tell, I am trying to tip-toe around this as gently as possible. DC is someone whom I respect very much.
My conversation with Graham pointed out one potential flaw to the system. Once you have the short sale accepted, the lender will give you 30 days to close on the property. You can often get an extension to 60 days, but nonetheless, you are dealing with a short time frame in which to close on the property.
Now what if, and this is a hypothesis, you get the property under contract. Then you remove it from the MLS for a few days and have the agent re-list the property at the price you want the BPO to come in at. This price is the quick-sale price that DC refers to. This is the price that you feel confident that the home will sell quickly. But because you have not waited for the accepted short sale offer, you have the property listed in the MLS at that quick-sale price for an additional 60-90 days or however long the short sale process takes.
When the BPO comes in, it comes in at the listed price. That is fine, because just by negotiating with the bank you will get them to take a certain percentage less than what the BPO comes in at. Lets say that number is 80%. Well then you still have 20% of room to play with and make your profits!
It may not be as big as the spread you can make following DC’s approach, but 20% on a million dollar property is still $200K!
The real kicker is that you have had an extra 60-90 days to locate a buyer for the home, thus ensuring that you will be able to close when the time comes. You will have a list of interested buyers. Granted, you do have to list the property as “Short Sale Pending”, but those extra days in the MLS could make a huge difference in whether or not you are able to sell the property.
I will give you an update on this when I get DC’s full course in the mail and when I close a deal following this approach as well.
If you have closed a deal this way, please let me know. And also give me your thoughts. Like I mentioned, I have not closed a deal this way but will let you know when I do.
Cheers,
~ Ross Treakle
I cannot comment on that either i am still waiting on the course
Hi Ross,
I agree with you and Graham that waiting for an approval just cuts down your marketing time to find a buyer - time you need desperately when looking for a high end buyer.
I have two more puzzles for you and Graham to unwind:
1) Who pays the listing agent’s commission?
2) What if the negotiations don’t work out for the investor - does he continue “processing” the short sale for the listing agent?
I don’t have D.C.’s “Deluxe” course - only the 30 day free intro stuff, but I’m hesitant to purchase it because of the vague discussions on these two items.
Item 1:
D.C.’s negotiator, Matt Rabb, in one of the videos says that the offer is submitted to the lender WITHOUT A LISTING AGREEMENT (it’s been withdrawn). So if the lender sees no listing agreement, hence no agent indicated on the estimated HUD 1, why would he pay a commission?
But D.C. repeatedly says things like “whatever the lender short-changes the listing agent on the A-to-B (first) transaction, we will make it up to him on the B-to-C (2nd) transaction. It seems to me that the investor, when signing the 2nd new listing (with a power of attorney) is re-selling the property as the new owner, and as such would pay the listing agent commission (along with the end Buyer’s agent’s commission. I just don’t see why the foreclosing lender would pay a commission.
Item 2:
Does the investor (or D.C.’s company) keep processing the short sale for the listing agent if the big discount does not pan out?
If they just walk away, they will have ruined a relationship with that Realtor.
I will write another post to try and answer these questions this week. The short answer to part one as I would run the transaction is that you pay listing agent on the A-B transaction there normal percentage. When you go in for initial meeting, tell the listing agent that you will pay their listing fee for the higher sales price but that the fee will come in two parts. The bigger part on the A-B and the smaller part paid on the B-C.
I agree with Graham, by marketing the property once the contract is signed between A-B, it gives B (buyer from the orginal owner) more time to sell the property. In regard to agent fees, the bank will pay the listing agent their fee, banks have been known to pay less than full commission, but I know in Chicago the agents have hammered banks on this issue, and listing agents are getting their full commission. In regard to listing property on the MLS every state or MLS has its own policies - in Chicago until a property has a new owner it maintains an MLS number that stays with it until it changes ownership (this means an official title change - this does not happen with a mere purchase contract. This means that there is no re-listing (no such animal); B can only has the right to the restatement of the listing price on the MLS; the Power of Attorney give B that right it is not a Power to change ownership big difference. Also,if the short sale amount acceptable by the bank does not allow for a profit or minimum profit to B the deal may be terminated by B - this means no one befits from the deal. This is always a possibility and should be reflected in an Affadivit that reflects full transparency of the short sale deal - for example it should state that this short sale is contingent upon the lender approving the short sale at an amount acceptable to B. Everyone, the Seller, Real Estate AGent, the End buyer, and the end buyers lender must fully understand everything involved in this transaction so that there are no surprises. Not all attempts at a short sale that is a win/win situation for all involved are successful; many are not, it is the risk we take.