Neat phone call today from appraiser who understood LIQUIDATION VALUE!!

Many of the short sales in Massachusetts and New Hampshire that we purchase are homes where the homeowner was facing a foreclosure. We have been very successful in getting that foreclosure stopped so we can start negotiating the short sale.

One of the most important aspects of the short sale process is the BPO. BPO stands for broker price opinion. The BPO occurs usually after an offer has been submitted (unless it’s a HAFA short sale). The BPO is conducted by an agent or an appraiser. This person is contracted by the lender to evaluate the subject property and give their “opinion” of its value. Any listing agent knows that the entire sale can hinge on this value.  If the BPO price comes in too high, the home won’t sell because the lender will typically only accept a small percentage (5-20%) off that BPO price. So, if the property is overvalued, the homeowner won’t get an offer on the property, as very few people are paying more than the value of a property.  This puts the homeowner in jeopardy of losing the home to foreclosure.

BPO agents and appraisers are SWAMPED right now with orders from lenders to complete this process for them. Interestingly, the bank usually gives the agent about 48 hours to get the report back to them. (My pick for job security for the next three years is become an appraiser or BPO agent)  BPO agents don’t get paid a lot of money for this valuation, however appraisers will get paid more.

Today, I got a phone call from an appraiser who tracked me down regarding a property that we bought last April in Rochester, New Hampshire. We purchase this short sale for $63,000 and resold it for $82,000. Sounds like a nice little spread huh? My take home profit after paying all my expenses was $2,900. Now divide that profit out by 6 months worth of work and tell me that short sale investors make a lot of money. Anyways, my profit was not the point of this story. The appraiser was using this property as a comp for something and took the time to call me and find out HOW we could buy it for such a price? Now besides the fact the property was a fixer upper and needed a ton of work, I explained that it was not a FMV. (Fair Market Value) The property was a LIQUIDATED VALUE.

Now about 90% of the real estate agents I speak with have NO idea that there is such a thing as liquidated value, but interestingly this appraiser knew EXACTLY what I was speaking about.

What is exactly is liquidation value?

Liquidation Value: from The Dictionary of Real Estate Appraisal, Appraisal Institute, Fourth Edition: The most probable price that a specified interest in real property is likely to bring under all of the following conditions: 1. Consummation of a sale will occur within a severely limited future marketing period specified by the client. 2. The actual market conditions currently prevailing are those to which the appraised property interest is subject. 3. The buyer is acting prudently and knowledgeably. 4. The seller is under an extreme compulsion to sell. 5. The buyer is typically motivated. 6. The buyer is acting in what he or she considers his or her best interest 7. A limited marketing effort and time will be allowed for the completion of a sale. 8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto. 9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Pay attention to number 4 and number 7.   MOST short sales I’ve purchased we determine the value by using liquidated value.  Many times a homeowner has come to us knowing there is an impending foreclosure on the property and have little to no time to market the property.  Even homeowners who know well ahead of time that they cannot afford their homes and decide to sell to us even when there is no current threat of foreclosure are still under extreme compulsion to sell because they know the sooner they sell their property, the faster they can get out of debt. 

Sadly, most short sales are valued using a FMV (fair market value) approach as opposed to a liquidated value approach, putting the homeowner in debt longer and possibly pushing them closer to foreclosure.  It is interesting to note overall short sales sell lower than non-distressed properties, but so many people value them the same as a fair market value property.

Maryann Little
Preforeclosure acquisition and negotiation
NH short sale
Massachusetts short sales
Massachusetts and New Hampshire Short Sales


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