If I can buy fully negotiated short sales directly from the agent/broker that represents the lender at 80% of BPO, is this a good flip opportunity?

Asked by Cash, Flow, Go, Orange County, CA Sun Jul 11, 2010

I have someone that can provide me properties consistently for 80% of BPO before they hit the MLS. I plan to wholesale it for 85% of BPO and list with the same agent that provided me with the deal so he can double end and make a nice commission. Is this realistic in this market? I want to turn properties quick and keep my velocity consistent. The markets I plan to buy are LA and OC counties under 350K (segment with the most buying activity) in decent neighborhoods with desirable schools and then sell within a month's time frame. Has anyone seen the market drop quickly (within 30 days) where it would affect my safety margin. I've been seeing most short sales going for close to BPO or slightly lower. Auction buyers typically are buying at 85-90 cents on the dollar, so my acquisition would be less minus holding and misc fees for funding.

Flippers: What do you think of my wholesaling strategy for short sales... viable for this SoCal market?

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Mack McCoy, Agent, Seattle, WA
Sun Jul 11, 2010
- Mack, your not right and you are insulting all agents by your post.

Actually, I am right, and you are missing the point.

What is a BPO? A Broker's Price Opinion. Not a guarantee of market value, but an (educated) opinion of value.

Are BPOs reliable? You tell us, Mark. How many BPOs have you done, and how many of those properties sold at exactly the price you came in at?

Now we have an investor who asks, will I make money by buying at a discount of the BPO? And you're telling the world, "Yes, because the BPO is so reliable that we can (almost) guarantee it?"

I think a better answer, Mark, is that an investor rely on somebody else's Opinion of value, preferably their own, or a reliable agent of their choosing.
3 votes
Dp2, , Virginia
Sun Jul 11, 2010
Unless you intend to wholesale those deals to retail buyers, you're not going to get many--if any--bites from other investors (who know what they're doing). With your numbers, you'd be leaving your investors a 5% profit. Most investors (myself included) will need at least a 20% margin. Keep in mind that nearly half of that will go to closing related fees/expenses (including your assignment fee), and that would leave them a 10% profit (half of what you're talking about).

Although some lenders have seasoning rules, others don't--besides, one can negotiate with a lender to drop that.

Additionally, you haven't accounted for any potential rehab related expenses, and you haven't factored anything pertaining to the market conditions into your formula. Plus, I suspect--by the lack of info on the exit strategies that you had in mind--you also haven't accounted for these numbers to work with a specific set of strategies.

So you still have some more work to do.
2 votes
Mack McCoy, Agent, Seattle, WA
Sun Jul 11, 2010
The only "O" that matters is yours - what YOUR opinion is of the resale value of the property.

If the BPO is too high, then 20% off may still be above market value.
2 votes
David Chiles, Other Pro, Los Angeles, CA
Mon Jul 12, 2010
Thank you for your question about flipping opportunities. In Orange County 'flipping' has begun again in certain areas, Santa Ana & Anaheim. I am not familiar with any 'flips' in LA County.

The short answer to your question is that, yes you can still flip properties, but no I would not would not recommend it.

The areas in Santa Ana and Anaheim where 'flipping' is going on are areas hit hardest by foreclosures, which have artificially made the prices lower than the market.
0 votes
Deborah Brem…, Agent, Los Angeles, CA
Mon Jul 12, 2010
There are so many other, safer investments available. This is not the manner to be flipping fight now. Yes, the market can drop, because it is not only sensitive internally (interest rates, supply and demand) but externally. For example, the monetary crisis in Greece or a stock market tick will affect prices in your neighborhood. A smart investor, right now, is thinking both locally and globally.
Deborah Bremner
REALTOR, 00588885
(D) 818.564.6591
Blogging at: http://TheBremnerGroup.com/blog
0 votes
Dallas Texas, Agent, Dallas, TN
Sun Jul 11, 2010
With any investment no one can render an opinion of resale ov the home . Many investors make huge mistakes when the BELIEVE the net profit is $xx,xxx when in fact ended up negative net.

Investors neglect total cost of carrying the property including upkeep realtor(s) fees, closing cost(s)

Probably best work with real estate consultant review your entire business plan, with CPA . I have worked with investors all over the world restructure promising delivery of net profit short/ long term goals.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes
Deluxe Realty, Agent, Las Vegas, NV
Sun Jul 11, 2010
Wow, some agents either don't have a clue, and answer without fully understanding a transaction... goes to show why 10% do 90% of the work.

Thom, simple and direct analysis. Nice!
0 votes
Emily Knell, Agent, Huntington Beach, CA
Sun Jul 11, 2010
What you're trying to accomplish CAN be done. For the $350K price range, I think you should also seriously consider San Bernadino & Riverside Counties. You can Easily get homes in this price range, they're not that old, don't need a massive amount of work vs. what you get for LA or OC county for $350k, an older home that probably needs a lot of work, issues with non-permitted rooms etc etc.

Working directly with the listing agent is fine too, what the other agents are stating about the listing agent representing the sellers best interests,,& with a buyer like you coming in wanting to go way below a BPO value (which can be possible if presented correctly to the bank, so long as the bank is netting more than if they were to take it to auction, you could get a price well below BPO)
If the seller will not qualify under the Mortgage Debt Forgiveness Act, then the listing agent needs to work to keep the purchase price nearest to the BPO, so the sellers' "income tax liability' on the negative balance is as little as possible. These types of sellers are those with refinanced loans, equity loans etc.
If the seller has a purchase money 1st or purchase money 1st / 2nd & they DO qualify Mortg. Debt Forgiveness Act (or otherwise won't get a 1099 at the end of the year)&&& the bank will waive rights to pursue deficiency judgment in the future against the seller &&&the bank agrees to accept a purchase price that's 20% below that BPO,,,,,, Then everything works out for everyone just dandy! Even if the listing agent is representing both sides.

In the case just above, everyone wins. Seller short sells, no DJ or income tax liability, Buyer wins/gets great price, bank wins (hey, they accepted),,agent wins (double ending). No harm no foul.

562-430-3053 cell

oh, & seller gets to buy again within 12mos with min. 580Fico w/ an FHA loan 3.5% down(gift funds ok) & builds equity back up from the bottom of the market (double win for seller)!!
0 votes
Thom Colby, Agent, Irvine, CA
Sun Jul 11, 2010
Cash -

Here's an example to think about even though this is not your target price range it's just today's example because it's real.

Large property, Southern CA. Original Sale was 5 years ago, new construction at $2.5 Million. 3 BPO's completed in last 45 days and are $1.7 Million, $1.6 Million and $1.5 Million per BofA. Multiple offers received in the $800's & $900's. Using your scenario, you would pay $1.2 Million (80% of lowest BPO) with an expectation to resell at $1.275 Million (85% of lowest BPO) .......... You would "lose your shirt" on this tranasction - with closing costs you wouldn'e even break even - plus, if it's a short sale, you will likely have to sign a 60 day NO FLIP Agreement with the bank (the latest twist in short sales)

Best of luck,

Thom Colby
Broker / Owner & Certified HAFA Specialist
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END a Transaction in our Brokerage as it is not beneficial to the Seller or the Buyer, but only to the Agent.
888-391-5245 Direct Cell
0 votes
Loan Do, Agent, Oceanside, CA
Sun Jul 11, 2010
If it's below market, what are the issues? Many of the OC homes I saw in that price range has no permit for conversion, additions or they are in bad shape. Have you considered any repair costs, termite, etc? Numbers are just numbers until you see the property. Then you might have to get your hands dirty. What's your second strategy if you don't sell within your time frame? Drop the price and lower your margin? Your margin may not be large enough if you haven't consider closing costs and commissions on both buying and selling ends. Don't forget the tax consequence for flipping so fast. Talk to your tax adviser as well.
0 votes
Don Tepper, Agent, Burke, VA
Sun Jul 11, 2010
Your margin may be too thin. Otherwise, it's not a bad idea so long as the BPO figures are solid . . . which often they're not.

Still, let's work the numbers. Say the BPO is $300,000. You'd put it under contract at 80% of that, or $240,000. So far, so good. And then you'd wholesale it for $255,000. That's OK, too. And from a strictly wholesale perspective, you'd be making $15,000.

One risk, as you note, is declining property values. If you can accomplish both ends of the transaction in 30 days, you'd be reducing, though not eliminating, your risks there. Remember, though, that the BPO would have been done some time before the property came on the market, so the time lapse might be 60-90 days, not 30.

Another concern is the accuracy of the BPO. We're working on the assumption that the BPO is an accurate reflection of value. Sometimes it is. Sometimes it isn't.

Another concern is the condition of the property. You don't indicate whether you'd be wholesaling to an end buyer or to someone else. In either case, though, there has to be enough room in the pricing to do any needed repairs or maintenance. If you're working with an end buyer, you'd be doing that. If you're wholesaling to another investor who'd be working with end buyers, that other investor would have to pay for repairs. Working the numbers, we've seen that there's a spread of $15,000. That's fine if the house is in decent condition. But if you need to come up with paint, carpet, and maybe a few other things (some appliances, let's say), you've really cut into your spread.

And Scott made a good point about the responsibilities of the selling agent.

So, look at your numbers closely. It could work, but you may want a somewhat larger cushion.

Hope that helps.
0 votes
Deluxe Realty, Agent, Las Vegas, NV
Sun Jul 11, 2010
Hello Cash, Flow, Go,

I’ll start with the Auctions, very brief: be careful when talking about Auctions... this is a very, very difficult area of expertise; auctions are very complex. When you're at the auctions at the steps of the courthouse, remember, you are not buying the property free and clear, and you are buying the note on it! If you don't do your research before purchase, you can end up very upside down. I have a buddy who has a team of 8-10 people who focus on Auctions; they analyze each property the day before the auction, and some properties still come out upside down.

80-90% of fair market is NOT a deal for investment:

First, why sell it at 80% of BPO? The bank prices properties to sell, not to entice people to flip. If the agent is working for the bank, how is this a short sale and not an REO? The agent represents the Seller... so if the agent in this case represents the bank, its a bank owned property, otherwise known as an REO (Real Estate Owned). This sounds like an REO, not a short sale, and short sales generally sell for cheaper than REO's, at least in Las Vegas, but the rules of statistics would state that this applies anywhere based on the sample market:


What is a BPO? It’s the suggested fair market resale price; it's not the lowest, so when you say your getting it at 80% of the fair market, why don't you check to see what the lowest price sold was... why did they price to sell at 80% below fair market? Are comparable prices decreasing? Is there something significantly wrong with the condition of property/structure? Is the lot size smaller than others? Or perhaps there are too many comparables for sale, so they needed to reduce the price to stimulate demand/attention to this property.

Your target buyer would be a primary resident... if someone wants a specific home, they are going to buy it; when you by for your own living, there’s emotion attached to the purchase. If there are many comps for sale, they’re going to offer the lowest or fairest price on the one they like most. If there are few or no comparable properties, let’s go with none, then there is a demand and you can list it for more than fair market. Primary Resident buyers may even be cautious of properties listed too low, as they will think: "what's wrong with this property?".

If you are dealing directly with the Seller's agent... STOP. Get your own agent, who represents you! The seller generally pays for the buyer's agent commission anyway, so make sure you have someone looking out for your best interest, not the Seller/Bank's best interest.

Another thing to consider when determining the value of this property to its comparables: what is the condition of the property, compared to the comps that sold at the lowest prices?? Also.... what is the average Days-on-Market? What's it going to cost you to maintain the property before it sells?

If it's truly a great property to flip, how come no one else has jumped on it? True investors are the first persons to watch the market.

What’s your bottom line? Let’s see… you said buy at 80% and sell at 85%? Wow.

Agent commissions alone will be 6%, plus costs for the Title Company (for purchase and resale), transfer taxes, HOA (if any) transfer fees and monthly dues, plus costs to maintain while on market, ++! Your bottom line is negative, sir.

I hope you didn’t already discuss this with the agent, and he agreed with your actions… if so, he’s not looking out for you.

Flipping is not so easy at it sounds.

Now, you must be asking... where's the money in real estate? I know it’s there!!

It is. You can contact me direct, if you’d like.


Mark Fleysher, MBA, Broker, Realtor
702-291-8186, mfleysher@gmail.com
0 votes
Scott Godzyk, Agent, Manchester, NH
Sun Jul 11, 2010
Your plan is well thought out, the only problem i see is a short sale is never approved until there is a buyer and an offer in writing, the bank will not order their bpo or appraisal until they have a buyer, so as long as you have the time to wait on these purcuases. The bank can assess if teh seller can even complete a short sale but can not negotiate a price, terms or closing without that offer.

No agent can guarantee what a bank will take, Most banks will not accept a loss of more than 20% of what the seller owes. They will use an independant agent to complete the bpo or even order a full appraisal to judge teh value in todays market.

If you can get it at 20% of todays market value you are getting an incredible deal. The problme i see is that the listing agent is supposed to work for teh seller, not the bank holding the mortgage and not you as teh buyer, if they are deliberately submitting low offers to make you a profit, they are not looking out for that sellers best interest because the seller is liable for that short amount, whether the bank goes after them or writes it off, that seller than is responsible for the taxes on that write off.

good luck with yoru investments,


Web Reference:  http://www.ScottSellsNH.com
0 votes
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