Very rude awakening by mortgage lender - home valuation - should I dispute? (Phoenix: sale, eviction)

[Zippyman]

Originally Posted by mjd2k

Guess your opinion of BPOs depends on if you're buying, financing or selling. I put offers on several short sales and the BPOs the bank got were ridiculously high. In the end, they were way too high compared to what they sold for. My agent was getting frustrated by me walking but every one I walked on sold for what I said it was worth or even less. I based my offers on what I thought the comps were.

I've got a couple of short sales under contract as investment properties - one of them is scheduled for a "drive by" BPO in the near future... I could really care less what it comes in at - there are a couple of real comps (same floorplan, same subdivision) for this property that have closed at trustee's sales in the past few months - that number is really the only one that matters - what will they get at trustee's auction if they decide not to accept my offer...

[MN-Born-n-Raised]

Originally Posted by Zippyman

I've got a couple of short sales under contract as investment properties - one of them is scheduled for a "drive by" BPO in the near future... I could really care less what it comes in at - there are a couple of real comps (same floorplan, same subdivision) for this property that have closed at trustee's sales in the past few months - that number is really the only one that matters - what will they get at trustee's auction if they decide not to accept my offer...

As you probably know, the banks sold their crap mortgages to the government but they still negotiate on the behalf of the new owner. Therefore the bank doesn't have to be logical.

[oldtrader]

The best way is to check and see the trends in real estate in your area.

Phoenix, AZ real estate overview - Trulia.com

Median Sales Price Phoenix Az down almost 20% past year. Average price per sq. ft. down 44% past year.

The median sales price for homes in Phoenix AZ for Feb 11 to Apr 11 was $85,000. This represents a decline of 3.4%, or $3,000, compared to the prior quarter and a decrease of 19.2% compared to the prior year. Sales prices have depreciated 62.2% over the last 5 years in Phoenix.

Hard to take for home owners, but is the truth. Something like 2/3rds of all homes underwater in Phoenix.

[Captain Bill]

Originally Posted by MN-Born-n-Raised

Thanks for the explanation Capt.

If someone hires a photographer to streamline the BPO process and the agent never bothered to step foot in the property, I don't have much faith they are going to get an accurate value. While a value is subjective, a 10% swing in an accurate value isn't acceptable IMHO. I'd trust a person that is located 30 minutes away who spent some time inside the home versus a low cost BPO that is plucked out of pictures.

I'd love for you to expand on why appraisers are feeling pressure to get lower values.

If one has sufficient photos from someone who knows how and what to photograph then you can get just as close as going in yourself. These aren't random photos that we see in the mls. These require lots of specific types of photos and plenty of detail descriptions.

Neither the bpo nor the appraiser is going to get in to see the Sold comps, so they're already relying on photos and descriptions from the mls for the Sold comps. Photos and descriptions on the mls are nowhere near as descriptive as photos and descriptions for a bpo.

We know there is a lot of subjectivity in every bpo and appraisal, so there is always going to be a variance, and I think 10% is reasonable given the fact that bpo's are done without having a contract in hand to show a target value.

A sale of mine just had the appraisal come in at $755,000. The sale price was $755,000 and the appraiser had access to the contract. The nearest comp in the same community sold recently for $800k and it did not have the amenities nor was it in the same condition as this house. We had viewed that house and it never made our short list. Our house was listed higher than that one then, and we were watching this one when the seller moved to his new home and decided to lower the price so it would sell right away. We got on it right away, as did others, but we got the house.

So the appraiser hit the $755k on the head. Was that 100% accuracy. No, it was off. He hit the sale price by making adjustments to hit that target. Had he tried to hit accurate market value his number should have come in higher.

Another home a few months ago, was appraised at $1.2 mil, a little less than my buyer paid for it. This was way off the mark using the recent solds and the Actives. He chose one Active outside this community, not at the top of a hill with a 180 degree view of the valley. He could have chosen an Active that was on the next street from this property that had fewer amenities, less square footage, lesser view, and listed at $1.6 mil. Instead, he chose to come in at a value closer to the sale price.

Remember that Appraisers are working on valuing a property that has a contract with a target price. It's very easy to make adjustments to make the value fall close to that target price, or right on it, as just happened.

A BPO works from scratch, with an unknown sale price that must fall within 10% of the bpo value. And the initial bpo is done 2-3 months before the home hits the market.

It's also dealing with some homes that are trashed and/or require a lot of work and the agent has to estimate the cost to repair and come up with an As Is value, and an After Repair value.

A little known fact is that the Asset Manager, to whom the listing agent reports, does not set the value of the house. S/he submits the bpo's and other information to the investor. The investor then sets the list price, which may not be even close to the bpo. It may be the investors dream price, or throw away price, and and not bear any resemblance to reality.

That's why the agents are graded on the sale price being within 10% of their BPO, and not the list price.

Regarding expanding on the pressures on appraisers, I can only tell you that I am in several networks of short sale agents and REO agents who have built contacts within the mortgage industry. These agents and brokers are very heavy into that part of the business, some doing hundreds of REO and sort sale transactions annually, and know a lot of people in the mortgage industry. They also hire people out of these industries into their firms because of their knowledge. The information I get from these sources is very reliable as it comes from insiders.

[Captain Bill]

Originally Posted by Zippyman

I've got a couple of short sales under contract as investment properties - one of them is scheduled for a "drive by" BPO in the near future... I could really care less what it comes in at - there are a couple of real comps (same floorplan, same subdivision) for this property that have closed at trustee's sales in the past few months - that number is really the only one that matters - what will they get at trustee's auction if they decide not to accept my offer...

Usually when the sellers lender orders a bpo for a short sale, it will be an interior. Doing a drive by on one under contract is not the norm. A drive by is usually a first look at an REO before doing the property evaluation.

I'm not sure if you're saying that homes sold at trustee sales to third party are comps. But homes sold at trustee sales are not comps in the retail market. They're not comps at all. They are only a reflection of what a wholesaler is willing to pay, and the foreclosing lender is willing to accept.

Different wholesalers have different business models, and consequently, have different percentages they can pay for a home.

As you know, many lenders set the mortgage balance as the opening bid, so they take it back as an REO.

[RLV]

I really thought I understood PMI ... it is a charge that people pay until they have 20% equity so that the banks are insured in case the people default. What I don't understand is where all of the PMI money went ... all of the zero down purchases where PMI was paid monthly ... yet I am not sure what happened. If the PMI protected the banks in cases of default ... why was it such a big deal for the banks when people defaulted? Who got all the PMI money?

[Zippyman]

Originally Posted by RLV

What I don't understand is where all of the PMI money went ... all of the zero down purchases where PMI was paid monthly ... yet I am not sure what happened. If the PMI protected the banks in cases of default ... why was it such a big deal for the banks when people defaulted? Who got all the PMI money?

The PMI companies are all bankrupt - the feebs have resorted to accounting gimmicks to keep them "alive", but they aren't really alive anymore. The amount they were charging for PMI was too low - they spent every penny in reserves in the first few months of the crisis.

[Captain Bill]

Originally Posted by RLV

I really thought I understood PMI ... it is a charge that people pay until they have 20% equity so that the banks are insured in case the people default. What I don't understand is where all of the PMI money went ... all of the zero down purchases where PMI was paid monthly ... yet I am not sure what happened. If the PMI protected the banks in cases of default ... why was it such a big deal for the banks when people defaulted? Who got all the PMI money?

If I understand correctly, PMI does not cover the entire mtg amount.

On short sales PMI companies can be the stumbling block to a successful sale. Sometimes they will demand a large contribution from the seller to cover part of their loss.

[Zippyman]

Originally Posted by Captain Bill

Usually when the sellers lender orders a bpo for a short sale, it will be an interior. Doing a drive by on one under contract is not the norm. A drive by is usually a first look at an REO before doing the property evaluation.

I'm not sure if you're saying that homes sold at trustee sales to third party are comps. But homes sold at trustee sales are not comps in the retail market. They're not comps at all. They are only a reflection of what a wholesaler is willing to pay, and the foreclosing lender is willing to accept.

Different wholesalers have different business models, and consequently, have different percentages they can pay for a home.

As you know, many lenders set the mortgage balance as the opening bid, so they take it back as an REO.

In this case, I'm an investor, not a "retail" buyer - so they ARE comps. As an investor, I can go to the trustee's sale and buy the house for less if they get any sillier with their conditions - I'm not in "love" with the house, I'm in "love" with the money I'll be making on the deal. There have been close to a dozen sales in that particular 'hood over the past few months for similar pricing, so if for some reason these deals don't close, I'll be first in line to purchase from a more sensible seller. There will be more available. The supply isn't infinite, but it's more than just these two properties.

As for your previous post about BPO's having picture requirements, unless they're "scratch-n-sniff" pictures, they aren't telling the whole story. One property smells like a wet dog inside - what's the proper BPO "adjustment" for that? Can you get that info in a "drive by" appraisal? I think not...

There isn't any way that some dude in a cubicle 2000 miles from here has a better idea of the home values in this particular subset-of-a-subset of the Phoenix market than I do, even if he has "great pictures". I've been inside most all of the "solds" for the past three years. I'm not saying I'm super-human, this is a neighborhood I've chosen to make into my personal "fish-bowl" - I check it out every morning while I drink my coffee.

[MN-Born-n-Raised]

Originally Posted by Zippyman

As for your previous post about BPO's having picture requirements, unless they're "scratch-n-sniff" pictures, they aren't telling the whole story. One property smells like a wet dog inside - what's the proper BPO "adjustment" for that? Can you get that info in a "drive by" appraisal? I think not...

Great quote.

Putting it another way, if I took the exact same guy who did the BPO and compared his values (using only pictures) versus having him go in the house and neighborhood to get the entire experience, I'd expect several property values to differ more than 10%.

As soon as they reduced the fee so that it mandated a photographer says it all to me: there is a compromise in the quality or value. But I do appreciate the Capt's explanation as I feel better about BPO's than I did before.