Understanding BPO Real Estate Value Opinions
BPO is the abbreviation for broker price opinion. This tool is used to obtain real estate value opinions in lieu of traditional property appraisals. Banks often use BPOs when assessing property values for foreclosure and short sale properties, as well as when borrowers want to obtain loan modifications or mortgage refinance.
BPO real estate value assessments are performed by real estate brokers. Two types of broker opinions can be performed and include internal or drive-by. Drive-by literally means brokers drive by properties to examine exterior condition and provide information about the neighborhood. This type of BPO is commonly used to assess foreclosure real estate because opinions can be gathered without the need for brokers to interact with foreclosed homeowners.
Internal BPOs require brokers to submit detailed property information by accessing the home.
Internal opinions are often used when borrowers enter into modified loans or mortgage refinance, as well as to obtain property values for real estate short sales.
When internal BPOS are used, brokers gather information about the interior and exterior conditions. Brokers report lot size, square footage, number of rooms, type of HVAC, and condition of walls, floors, ceilings, roofing, fencing, siding, etc.
Drive-by and internal broker price opinion reports include year built, lot size, square footage, number of rooms, and property condition.
Lenders usually require information about the community where real estate is located. Banks typically need to know the number of homes for sale in the area, along with the number of foreclosure properties.
Property values are based on several elements including the amount of foreclosed homes within a 1- to 5-mile radius. When multiple foreclosure properties exist, real estate values of all homes in the area can decline. Many cities within the U.S. have witnessed property values decline as much as 50-percent. This has left many mortgagors owing more than their home is worth.
BPOs are commonly used when borrowers enter into loan modifications. Lenders have recently started offering modifications that reduce the principal balance. When banks decrease the balance owed on home loans they increase chances of borrowers adhering to modification terms.
Accurate broker price opinions might reduce principal balances by up to 20-percent. Although this is a large deduction for mortgage financiers it is more cost-effective than commencing with the foreclosure process.
Mortgagors that require property appraisals should take time to conduct research to determine if broker price opinions are legal within their state. The Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits broker opinion reports from being used as the primary tool for determining property values when real estate is used as collateral to secure the loan. It can be beneficial to seek counsel from a real estate broker or attorney to ensure BPO is the accepted and legal protocol.
Individuals engaged in buying, selling, or trading real estate should take time to learn how to use BPO evaluations. California real estate investor, Simon Volkov offers an extensive real estate investing article library covering topics of property appraisals, financing options, and investment strategies at www.SimonVolkov.com.
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Source: http://thespaceofgood.com/understanding-bpo-real-estate-value-opinions/
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