What's up with the listing agents in Corona putting artificially low prices on houses?

Asked by Crazy Market, Corona, CA Wed Apr 29, 2009

It seems they just want to get enough of us suckers to make offers on them in order to drive the price up. Then the homes go through the short-sale process where the lender sits on it for a couple of months, then requests a BPO, then comes back with a counter that is ridiculously high - way higher than the market can justify - based on the first round of "bidding". And this all so the lender can recoup their losses because they were greedy in granting those ridiculous home loans in the first place! In the mean time, the lenders can sit there and wait it out because we tax payers are going to bail out all those toxic loans in the end, so the banks won't really take a loss. This is crazy. Am I missing something?

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Diana Margala, Agent, Rancho Cucamonga, CA
Mon May 11, 2009
BEST ANSWER
Yes there are two BPOs or sometimes a BPO and an appraisal. Then when someone purchases the property there is another appraisal which is done to protect the bank that is lending the money on the property.

Each REO agent has to report to the banks and according to what the banks requirements are they must keep the banks informed if the prices are changing in the area of the property, so there is new data that is given to them on a regular basis.

Usually when a BPO is ordered it can be ordered by a bank to some specific agents that they use for certain zip codes, but most banks use companies that have agents join their site, (many sites costing the agent money). The agent must provide information to that site many times by taking tests and providing their experience but sometimes it is as little as uploading their license, a copy of their E & O insurance and a W-9 form. The companies usually give out BPO to agents who’s office is less than 30 miles from the property.

The agents have to use the BPO site and its questions to input the information. Some BPO sites are more detailed than others. I know of I believe 75 sites. The agents get paid from $0.00 (with a promise to get REOs after so many BPO) to $180.00 depending on the company, the type and the complexity.

At first agents thought if they gave a high BPO that they would get the listing, now most of them realize that doesn’t work and the banks want accurate BPOs. When an agent does a BPO if there is an area for commits that is where they can explain the market in a specific area. One done properly explains how many REOs are for sale, how many short sales and how many standard sales all of which dictates how the market for that type of home in a specific area might change. Time on market is also important to them, it gives them an idea of how long it could take for the banks to hold the property before it is sold.

The agents give them a repaired price, 30 day sale price and an as is price. (The bank compares the two BPO’s and the bank determines the price it is listed for). It is important that the REO agent be accurate because he is held accountable if the property doesn’t sell in a timely manner (according to his/her prodictions). One of the problems with REOs is the fact that new banks won’t lend on the homes that for instance don’t have cabinets, a heating system, doors, cracked windows, etc. So the property is then listed very low (making an average buyer who is willing to do the work think they can pick up a great bargain only to find out that they cannot get a loan on the home because of the repairs that are needed), because a lender wont lend on that property, so it really only is available to a cash buyer or someone who knows how to do a 203k loan. So now they have companies that REO agent can call to get a price on repairs so that they can get a better determination on the cost of repairs.

Remember most banks determine their decisions on formula’s, so many days is one portion, a certain % of current market price is another and weather or not the market is going up or down. Oh one last thing…the agent must work for a broker (the broker us ultimately responsible for their work) thus the name Broker Price Opinion.

I hope this is helpful
Diana 909-945-5763
Web Reference:  http://www.dianam.com
2 votes
Dp2, , Virginia
Mon May 11, 2009
An appraisal differs from a BPO. A broker/agent performs a BPO (short for broker's price opinion).

Actually, I've see this kind of behavior also on REOs in a few markets--especially some ones in FL.

Crazy, your analysis was almost correct. You're definitely missing something. The banks wouldn't actually lose anything--whether or not they received the bail-out money--for several reasons: 1) the loses recorded are paper loses that they can (and will) write off; 2) the amortization formula was designed so that banks will earn the bulk of their interest within the first 5 years of a 30-year loan; 3) the only loses that the banks actually will suffer is the inability to lend a certain amount of money held as reserves for a defaulted loan before the gavel falls (in the foreclosure case); 4) the banks can resell a foreclosed property for whatever they can get, and the money earned is pure profit, because the foreclosure wiped all of the inferior liens; 5) the bail-outs; 6) most buyers aren't as aware of the games as you are; and 7) the banks will earn even more money lending on properties (that they foreclosed on and sold)--only to possibly repeat the process.
2 votes
Diana Margala, Agent, Rancho Cucamonga, CA
Wed Apr 29, 2009
Unfortunately it makes it hard for everyone when agents do that. Usually they are on Short Sales. They are trying to create a frenzy for the property and cause the buyer to bid it up. It is very difficult to explain to buyer (when we are representing them) as to why they will not get the property at that price. When I help a buyer prepare an offer I always pull the most resent sales so they under stand what might be acceptable to a bank on a short sale or REO. If the property is priced very low, it makes it harder to explain that it will most likely be bid up in price and if not it also will not be accepted by a bank that is approving a short sale. You usually don’t see it on an REO because the bank has the REO agent prepare a BPO and they also order a BPO from a service to make sure they are pricing the property correctly and the Banks approve the price. (Sometimes because of their investors and their rules they price them too high.)

The other problem is that it has clients looking at these low listings thinking that is what the homes will sell for and should be priced at giving them an unrealistic perception of the market. Make sure that your agent pulls the most current sales of similar homes so that you know what homes are selling for in the area that you are looking. Be careful if you use some of the sites, many of them have foreclosed information, not sale information.


Good Luck:
Diana 909-945-5763
Web Reference:  http://www.dianam.com
1 vote
Andrew Vitch, Both Buyer And Seller, ontario, canada
Fri Jul 24, 2009
Hey Crazy,
Don't let it drive you nuts! lol. It can be frustrating but just consider how much lower you will eventually pay for the property you buy than the price that people paid a few years ago. Be patient, cautious and determined and you will be buying at a great bargain price. The headaches caused by the current process will be well worth it in the end.
Andy
0 votes
Crazy Market, Home Buyer, Corona, CA
Sat May 16, 2009
Dp2 -

Thanks very much for your answer. Also saw your own question elsewhere and am wishing you the best! --Crazy
0 votes
Crazy Market, Home Buyer, Corona, CA
Sat May 16, 2009
Diana -

Thanks again for your very thorough answer!

Best regards!

Crazy
0 votes
Diana Margala, Agent, Rancho Cucamonga, CA
Mon May 11, 2009
I'm glad I could help. There is a lot to it and I think it makes it easier for a buyer when they understand the process.
Diana 909-945-5763
Web Reference:  http://www.dianam.com
0 votes
Dp2, , Virginia
Mon May 11, 2009
Although I can't speak for Crazy, I can tell you that your explanation has definitely provided me a lot more insight about the BPO process.
0 votes
Crazy Market, Home Buyer, Corona, CA
Sun May 10, 2009
HI Diana -

Thanks again for the response. This was a very interesting comment:
"You usually don’t see it on an REO because the bank has the REO agent prepare a BPO and they also order a BPO from a service". This implies there are two BPO's. In light of our other conversation, this is an interesting statement.

BTW, what kind of service provides a BPO? Is it an appraisal company or just another (presumably independent) broker?
0 votes
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