Lenders will often attempt to base the current value of the property from the appraisal from which the loan was originally underwritten and approved. In most current market conditions, the property has not attained the value stated in the original appraisal. This loss of value can result from a decline in the current market condition, from the overstated value in the original appraisal, or from an inability of the property owner to maintain the condition of the property.

Our job as a short-sale investor will be to show the lender the true current value of the property. First, we must address the issue of value from the lender’s appraisal. The real value of the property in most cases is going to be much less than the lender’s perceived value from the appraisal.

The lender will order a broker’s price opinion (BPO) to verify their values compared to what we state the value of the property is at current market conditions. A BPO is an evaluation done of the property performed by a real estate broker. A broker is a real estate agent who is licensed and bonded to own their own agency. Some lenders will accept a certified market analysis (CMA). CMAs can be completed by a real estate agent who is licensed but practicing under a broker’s license and bond. Whether a lender orders a BPO or CMA depends on each lender’s charter, and in some instances what different state statutes allow. You will need to check with a real estate attorney to see what your state statutes require. Bear in mind that even if your state allows a CMA to be used, many lenders will require a BPO.

You should always be proactive and submit a BPO or CMA with your short sale package. The lender normally does not request this in the short sale package—they will normally order their own. By ordering their own package, they can request that no real estate owned by the bank (REO) be listed in the BPO.

One of the most powerful strategies to be used with the BPO is to make sure that the comparables reflect what the property’s value will be if the lender were to take the property back as real estate owned by the bank. This occurs when property does not sell at an auction and the lender takes the property back through the auction process.

Should the lender end up with the property as an REO, the value will be as other REO properties. Real estate owned by the lender has a lower value than nice homes on the market. Real estate owned is normally bought only by investors. Owner-occupied purchases, or individuals buying the home to live in, typically do not want the stigma or “bad luck” that comes with an REO.

This results in REOs normally selling from 20 to 50 percent below regular market prices. REOs also have a tendency to sit on the market twice as long as other properties. This is a result of lenders trying to get market value prior to dropping the price low enough to sell to investors. Investors do not buy at fair market value, so the REOs sit much longer on the market and ultimately sell much lower than other properties.

As an investor, you can utilize this knowledge in preparing your BPO to submit with your package. Using REO comparables on the market immediately brings the property value into perspective with the lender as a preforeclosure.

Collect comparable sales of REO properties, making note to choose the lowest properties available that match the short sale property, as well as those that have sat the longest on the market. Include pictures of the rehabs necessary with your BPO as well as contractor bids to fix the rehabs.

Place your results on a CD or flash drive. Then provide this information to your Realtor or broker who will then compile the information and prepare a BPO to submit with your package. We have done all the legwork by providing comparables and rehab estimates, as well as pictures of the interior and necessary rehab required. The Realtor or agent will then only need to verify your work and possibly do a drive by.

It is important to provide interior pictures with your BPO in the short sale package. Most Realtors or brokers do not go inside of a property when they complete a BPO for the lenders; they simply do a drive by. If the homeowner has been trying to hide from their neighbors, family, and friends that they are in preforeclosure, then they may have been keeping up the curb appeal of the property while the interior has been suffering a lack of maintenance.

Providing the BPO legwork for the Realtor also assures that you have some control over the value achieved on the property as well as adding great assistance to the Realtor on your Power Team.

Should the lender in turn want to schedule their own BPO, you can provide the lender’s agent with the same information on a CD or flash drive. This ensures that the repairs and comparables are considered in determining the current market value. Submitting your own BPO with the short sale package also ensures that the lender must consider your value. Additionally, this ensures that the lender will be unable to use the original appraisal in the packet for the current market value of the property. These strategies enable you to ethically and legally affect the value the lender must consider for the property.

There are many strategies and methods to utilize in submitting a short sale package to the lender that gives you, the investor, strength in negotiating a strong discount. I encourage you to learn more in-depth about these and other strategies.

Lauri Waddell is an instructor of the Wealth Intelligence Academy Short Sales and Mortgages Advanced Training.