A Broker Price Opinion (BPO) from Jon Nelson, Broker/Owner of Nelson & Associates Realtors can give you a winning strategy to maximize your sale and minimize your-days-on market without leaving money on the table or worse, having what looked like a fabulous offer eventually fall through for failing to appraise. Get the Edge and be a Savvy Seller!
Avoid the Equity Trap with a BPO
Buyers are reluctant to pay more than the appraised value (estimated market value) of your home because they want to avoid negative equity.
Negative equity is what happens if the buyer pays more for the home than the bank thinks the home is worth. The bank determines that value by having an appraisal done and ultimately, unless the buyer is paying cash, the house needs to appraise for at least the offer price or the bank won’t extend the mortgage.
If it doesn’t appraise, you may have to renegotiate the price… or the deal could just fall through. That can mount up to a big waste of time and a delay in selling your home by up to two or three months.
The Selling Advantage
Typically neither the buyer nor the seller knows what the appraised value is going to be, so buyers protect themselves with an appraisal contingency (saying the home has to appraise at or above the offer price) or they limit the difference between the appraised value and their offer price they are willing to absorb.
On the other hand, sellers can get caught up in the same offer frenzy and accept an unrealistically high offer. Because it may take a month or more to get the appraisal, that high offer will be “dead in the water” until the bank receives and can analyze the appraisal. And then…the deal might fall through because the offer is much higher than the appraised value, or the buyer is unwilling to make up the difference. The net result of accepting the offer that seems too good to be true is that it might actually be too good to be true.
How is your List Price Determined?
The Crystal Ball Approach
Keep in mind that banks are going to use the appraised value to determine how much it will lend any buyer. To approximate this value most agents do a Competitive Market Analysis (CMA), but a CMA is based on two things: 1) A cursory look at recent sale prices in the area; and 2) A guess as to how those prices might influence your sale price. A CMA is quick but not very reliable because it depends heavily on guesswork and assumptions.
The Formal Appraisal
In an appraisal, the appraiser selects three or four recently sold homes (comparables) that are as physically similar and as geographically close to the subject home as he can find.
Of course each home will have some differences both from each other and from the subject home. To make all the homes as equivalent as possible, the appraiser adjusts the value of each comparable home up or down based on the features of each home compared to the features of the subject home. This “normalizing” process puts all the homes on an equivalent feature footing with the subject home. By analyzing the sold prices of the normalized homes, the appraiser can determine a very accurate estimation of the market value of the subject home. This is the “appraised value” lenders use to determine how much they will lend on the home.
Enter the Broker Price Opinion
Certain Real Estate Brokers are retained by lenders to determine a market value of a home, usually for home equity loans. I am one of those Brokers. This is called a Broker Price Opinion or BPO and you have to be a Real Estate Broker (not just a Real Estate sales agent) to provide these. If an agent offers you a BPO, be sure you confirm who the Real Estate Broker was who prepared the BPO for them.
The process of developing a BPO is very similar to the processes used by appraisers to develop an appraisal. Although a BPO is not quite as exhaustive as an appraisal it is typically a very close estimation the actual appraisal. Most importantly, a BPO is in an entirely different league than a real estate agent’s CRM. A bank will make a home equity loan based on a BPO: they wouldn’t make such a loan based on an agent’s CMA.
The BPO Strategic Sales Advantage
So how does all this benefit you as a seller? The answer is that you will have a strategic advantage over your buyers because you know how much your home will likely appraise for and the buyer will likely not have that knowledge.
Consequently, when you receive an offer, and you are likely to receive several in this market, you have the advantage of knowing your BPO value and can make an educated choice between a realistic offer that is likely to appraise and close and an unrealistically high offer that while attractive, will likely not be supported by the appraisal and could delay or scuttle your sale entirely.
The Choices are Yours
You can either accept the first solid offer that brushes up against your BPO value and be pretty certain your deal will close; or you can counter low offers up to your BPO value; or you can counter the unrealistically high offer with a condition that the buyer agrees to bring sufficient funds to closing to cover any difference between the appraised value and their offer and that they agree to remove their appraisal contingency. You can determine how much they would have to bring and gauge your counter offer accordingly.
Nelson & Associates Realtors will give you the Strategic Advantage
It is always good to have the inside knowledge when you are making a deal and even better to have the choices. As the principle broker of Nelson & Associates Realtors, when you list with me I can provide you with the BPO that will make you the Savvy Seller with the strategic advantage. Call me today at 608-438-5230. You will be dollars ahead and happy you did.