1 TO: All Interested Parties
FROM: John S. Brenan
Director of Appraisal Issues
RE: Draft White Paper – Alternative Valuation Products and the
Uniform Standards of Professional Appraisal Practice
DATE: October 8, 2013
At the request of its Industry Advisory Council, The Appraisal Foundation has drafted the attached white paper on Alternative Valuation Products and the Uniform Standards of Professional Appraisal Practice (USPAP).
The white paper is intended to provide information to assist appraisers, users of appraisal services, and others, with a greater understanding of Alternative Valuation Products and their use in the marketplace. The paper also attempts to view these products in light of an appraiser’s USPAP obligations.
All interested parties are encouraged to comment in writing before the deadline of December 31, 2013. Respondents should be assured that each comment will be thoroughly read and considered.
2
Written comments on this white paper can be submitted by mail, email and facsimile. Mail: Comments: Alternative Valuation Products and the Uniform Standards of
Professional Appraisal Practice (USPAP) The Appraisal Foundation
1155 15th Street, NW, Suite 1111 Washington, DC 20005
Email: TAFcomments@appraisalfoundation.org Facsimile: (202) 347-7727
IMPORTANT NOTE: All written comments will be posted for public viewing, exactly as submitted, on the website of The Appraisal Foundation. Names may be redacted upon request.
The Appraisal Foundation reserves the right not to post written comments that contain offensive or inappropriate statements.
If you have any questions regarding the attached exposure draft, please contact John S. Brenan, Director of Appraisal Issues at The Appraisal Foundation, via e-mail at john@appraisalfoundation.org or by calling (202) 624-3044.
3
Alternative Valuation Products and the
Uniform Standards of Professional Appraisal Practice
Introduction
In the appraisal industry, particularly the residential mortgage sector,1 there has been a 1
proliferation of products and processes attempting to provide alternatives to 2
“traditional” appraisals in recent years. The primary factors behind development of 3
these Alternative Valuation Products (AVPs) are generally to reduce cost and improve 4
timeliness. 5
For many years appraisers heard tales of someday being replaced by a “black box” that 6
could determine the value of a property without the judgment that an appraiser may 7
bring. In fact, to some extent this has come to pass with products that exist and are in 8
use today, such as Automated Valuation Models (AVMs). Interestingly, however, there 9
are many cases where an appraiser’s training, experience and expertise are necessary to 10
provide a credible analysis and, ultimately, opinion of value. 11
This paper will attempt to: identify a number of the products being used today as 12
alternatives to an appraisal; describe who uses these alternative products and why; 13
discuss who performs assignments utilizing alternative products; and examine these 14
products in light of the Uniform Standards of Professional Appraisal Practice (USPAP). 15
While this document is neither intended to be an exhaustive study of all AVPs, nor a 16
thorough examination of their overall impact in the collateral valuation marketplace, it 17
is hoped that this paper can be an aid to understanding AVPs and why they are being 18
used. It is our belief that a USPAP-compliant appraisal completed by a competent and 19
ethical appraiser remains the “gold standard,” incorporating relevant data and the 20
analytical expertise provided by an appraiser. However, we fully recognize that AVPs 21
play an important role in the valuation marketplace, and we would be remiss not to 22
examine that role in a meaningful manner. 23
1
While alternative valuation products exist in the non-residential appraisal sector, the focus of this paper will be on the residential mortgage sector of the appraisal industry.
4
I.
What is an Alternative Valuation Product (AVP)?
24
For purposes of this paper, we will “define” an Alternative Valuation Product (AVP) as: 25
A product that communicates an opinion of value (or price) other than a 26
“traditional” appraisal. 27
Note: In the residential mortgage valuation sector, this means something other than 28
an appraisal developed and reported using “standard” Fannie Mae/Freddie Mac 29
appraisal report forms. 30
It should be noted that not everyone in the residential mortgage sector defines an AVP 31
as noted above. However, this is the definition that we will base this paper on and 32
AVPs will be viewed in comparison to appraisal reports prepared using “standard” 33
Fannie Mae/Freddie Mac appraisal report forms. 34
As indicated in the preceding paragraph, AVPs may offer opinions of value or price. 35
Although some clients may not distinguish between these terms, it is worthwhile to 36
note that USPAP does. USPAP2 defines the terms as follows: 37
VALUE: the monetary relationship between properties and those who buy, sell, 38
or use those properties. 39
Comment: Value expresses an economic concept. As such, it is never a fact 40
but always an opinion of the worth of a property at a given time in 41
accordance with a specific definition of value. In appraisal practice, value 42
must always be qualified - for example, market value, liquidation value, 43
or investment value. 44
PRICE: the amount asked, offered, or paid for a property. 45
Comment: Once stated, price is a fact, whether it is publicly disclosed or 46
retained in private. Because of the financial capabilities, motivations, or 47
special interests of a given buyer or seller, the price paid for a property 48
may or may not have any relation to the value that might be ascribed to 49
that property by others. 50
As indicated by the definitions above, USPAP does not provide for an “opinion of 51
price,” since it defines price as a fact. 52
What are some common examples of AVPs? 53
There are a number of AVPs in the marketplace, with the number seeming to increase 54
frequently. The list below is not intended to be exhaustive in nature; rather it is 55
illustrative of some common AVPs in use today, along with a brief description of each. 56
5
Broker Price Opinions (BPOs) – One of the most commonly-recognized AVPs, BPOs 57
have been used for many years by real estate brokers in the ordinary course of their 58
real estate brokerage businesses. The product was originally designed to assist 59
homebuyers and sellers in real estate listing and sale transactions, but in recent years 60
its use has been expanded for additional purposes. There is no single recognized 61
BPO form or format; many have been developed over the years and tweaked for the 62
users’ specific needs. The sample BPO form included in this document (see 63
Appendix) was developed by Freddie Mac for loan servicing purposes. 64
Comparative Market Analysis (CMAs) – A CMA is a product which originally was 65
used in a very similar fashion to BPOs, but could also be used by agents (i.e., real 66
estate salespeople). Like BPOs, in addition to closed sales CMAs may also use 67
pending sales and active listings to assist homebuyers and sellers. There is also no 68
single CMA form or format that is universally utilized. 69
Automated Valuation Models (AVMs) – In a sense AVMs are, in fact, the “black boxes” 70
some appraisers “feared” for many years. AVMs utilize a great deal of data and 71
mathematical formulae to calculate estimates (or opinions) of value. Although some 72
appraisers retain negative feelings towards AVMs, these products have proven to 73
have a place in the valuation marketplace. The downside of AVMs is that they are 74
completely reliant on available data, which might require the type of “filtering” 75
performed by an appraiser. One variation of an AVM is known as an “Appraiser-76
assisted AVM,” which is intended to lend an appraiser’s expertise to the value 77
“calculated” by an AVM. 78
Appraiser Price Opinions (APOs) – Similar to BPOs, there is no single form or format 79
for APOs. In fact, use of the APO product appears to have waned in recent months. 80
While no empirical data exists to support this, it appears that the distinction 81
between APOs and appraisals may not have been great enough to warrant 82
utilization of the APO product. Furthermore, as stated previously, an inherent 83
conflict might exist since USPAP addresses opinions of value, not price. 84
Reconciliation Review (sometimes referred to as “tie outs”) – This may actually be 85
more of a process than a specific product. Most often, the reconciliation review 86
process consists of an individual (often an appraiser) being provided with multiple 87
valuation products, who is asked to cull through what has been provided and to 88
reconcile an opinion of value. The individual may receive appraisals, appraisal 89
reviews, BPOs, CMAs, AVMs, and/or other statements or opinions of value. Once 90
again, there is no single form or format for reporting the results of this process. 91
Non-Standard Desktop Valuations/Field Reviews – Desktop valuations are permitted in 92
USPAP (USPAP does not require a physical inspection of the subject property or the 93
comparable sales). However, there appears to be a wide variety in how these 94
assignments are developed and reported. Part of the reason for the lack of 95
consistency in these types of assignments may relate to ambiguity with respect to 96
USPAP compliance and jurisdictional compliance for appraisers. For example, a 97
review appraiser holds a certification from “State A” but performs a desktop 98
6
valuation on a property in “State B.” In many instances, “State A” will claim they 99
do not have jurisdiction because the property is not located in their state, while 100
“State B” will claim they have no jurisdiction because the appraiser does not hold a 101
credential in their state. 102
Full inspection proprietary appraisal form (non-GSE form) – Because this paper focuses 103
on comparisons to the “standard” Fannie Mae/Freddie Mac appraisal report forms, 104
we recognize there are other report form formats that are used for transactions other 105
than GSE-related appraisals. Many of these forms look very similar and require the 106
same type of information as the GSE forms. But because the GSE forms include 107
restrictions stating they are to be used for mortgage finance purposes only, they 108
cannot be used for other purposes. 109
II.
What types of clients order AVPs?
110
To better understand what types of clients use AVPs, it may be best to first identify 111
those clients and transactions where AVPs are not allowed. Under Title XI of FIRREA, 112
all federally-related transactions3 and real estate-related transactions4 require a USPAP-113
compliant appraisal, performed by a state-licensed or state-certified appraiser. In these 114
cases, the use of an AVP is not permitted as the basis for collateral evaluation. 115
It is also important to recognize that the federal financial regulatory agencies publish 116
guidelines for appraisals, as well as what they refer to as evaluations.5 While an AVP 117
may not be used if an appraisal is required, it is possible that some AVPs may be used 118
in certain circumstances when an evaluation is required. Additional guidance from the 119
Appraisal Standards Board (ASB) on this topic may be found in Advisory Opinion 13 120
(AO-13), Performing Evaluations of Real Property Collateral to Conform with USPAP.6 121
AVPs are commonly requested by lenders (for transactions that do not fall under Title 122
XI of FIRREA), loan servicers, government-sponsored enterprises, hedge fund 123
companies, and other entities in capital markets. In addition, AVPs are sometimes used 124
by property owners, potential homebuyers, insurance companies, marketing agencies, 125
as well as a number of others. 126
3 Any real estate-related financial transaction which —
A. A federal financial institutions regulatory agency or the Resolution Trust Corporation engages in, contracts for, or regulates; and
B. Requires the services of an appraiser.
4 Any transaction involving —
A. The sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing thereof; or
B. The refinancing of real property or interests in real property; or
C. The use of real property or interests in property as security for a loan or investment, including mortgage-backed securities.
5 Interagency Appraisal and Evaluation Guidelines, December 2010
7 Why do clients order AVPs in lieu of appraisals? 127
If clients are not legally required or otherwise obligated, why would they order an AVP 128
instead of an appraisal? Although there may be a number of reasons, they can 129
essentially be classified into these categories: to utilize different or additional analytics 130
to value the collateral; to reduce the time necessary to obtain a valuation; and/or to 131
reduce the cost associated with obtaining a valuation. 132
One such example can be found in the default mortgage-servicing sector. Clients often 133
require valuations for each asset several times a year. Many of these clients feel the 134
opinion of value may not be as important as the data presented; as a result, the cost of 135
acquiring appraisals on a property several times each year is considered cost-136
prohibitive. 137
Some clients utilize certain AVPs in a desire to incorporate greater data and/or 138
analytics than appraisals, thereby allowing the client to better assess the collateral and 139
risk. Depending on the property and AVP used, this belief may or may not be valid. 140
For example, as a general rule, AVMs (a commonly-used AVP) are typically more 141
reliable when the subject property is located within a homogenous marketplace. 142
Therefore, if the property under consideration is largely similar to other properties, it is 143
possible that an AVM analyzing hundreds (or possibly thousands) of sales of very 144
similar properties may render a very reliable value estimate. This may be especially 145
true when compared to an appraisal where an appraiser may consider five, ten, or even 146
fifty properties, in order to render an opinion of value. 147
Conversely, AVMs are typically less reliable for properties in markets that include 148
homes with custom features, varying levels of renovation, different amenities, etc. 149
AVMs may also be less reliable in areas where there has been relatively little market 150
activity (i.e., sales). In cases such as these, a client might want to consider the reliability 151
of the value opinion with a great deal of caution, and may opt to consider additional 152
tools to evaluate the collateral. 153
Some clients may believe that it is not always possible to properly understand how an 154
appraiser arrived at his or her opinion of value, and that the appraiser’s own individual 155
“biases” or opinions may have an impact on the reliability of the value opinion. They 156
suggest this perceived lack of “transparency” by appraisers may render their value 157
opinions less reliable. As a result, they may opt for an AVP when possible. 158
Appraisers who perform appraisals in compliance with USPAP should be able to refute 159
any claims that their appraisals lack transparency. In fact, USPAP requires an appraisal 160
report to contain enough information for the intended users to properly understand the 161
appraisal report.7 Further, the Conduct section of the ETHICS RULE in USPAP requires 162
an appraiser to be independent, impartial, and objective, and to perform assignments 163
without bias. 164
8
Many clients opting for AVPs in lieu of appraisals tout the lower cost and/or quicker 165
turnaround times these products may offer. It may be true that many AVPs require less 166
“work” than appraisals; however, whenever considering the amount of work being 167
performed, it is vital to recognize how reliability is impacted. For example, an AVP that 168
simply entails a desktop analysis of three recent closed sales and three active listings 169
may not provide for an adequate analysis of the subject property and/or marketplace. 170
While this desktop evaluation of six properties may be performed in a quick and 171
inexpensive manner, it’s fairly obvious that in many situations, such an analysis may 172
lack the required credibility. 173
AVPs are also frequently used by some clients as a diligence tool in evaluating 174
appraisals performed for mortgage originations. In these cases, clients will utilize an 175
appraisal for loan origination purposes as required by Title XI of FIRREA, but may also
176
obtain an AVP to further support their lending decision. 177
Whatever the reasons, AVPs have been used by clients in significant numbers in recent 178
years. In 2009, more than 10 million BPOs were ordered.8 With demand so robust for 179
just one single AVP product, it’s not difficult to see how significant AVPs have become 180
in the marketplace. According to the Real Estate Valuation Advocacy Association 181
(REVAA), BPOs may be suitable for: 182 Residential sales 183 For sellers 184 For buyer 185
Additional diligence on appraisals 186 Appraisal review 187 Appraisal supplement 188 Quality control 189 Fraud 190
Appraisals validation and assessment 191
BPO data is used for comps, neighborhood and market analysis, etc. 192
Market changes 193
Eyes-on/drive-by BPO is used to assess changes in property condition 194
Internal non-lending purposes 195 Valuation of portfolio 196 Market to market 197 PMI removal 198
Secondary loan markets 199
Establish portfolio price - seller 200
Due diligence - buyer 201
Mortgage Backed Securities 202
9 Distressed loans 203 Ongoing diligence/disposition 204 REO 205 Short Sale 206 Loan Modifications 207 Pre-Foreclosure 208 Legal 209 Divorce 210 Estate settlement 211 Lawsuits 212 Prenuptial agreements 213
Change is inevitable, and as with all aspects of the valuation profession, it is vital to 214
keep abreast of the latest updates to laws, regulations, and policies. For example, 215
changes could occur that limit the acceptability of BPOs for some of the types of 216
transactions in the preceding list. 217
An example of changing law occurred when the Consumer Financial Protection Bureau 218
(CFPB) recently revised Regulation B of the Equal Credit Opportunity Act (ECOA).9 219
Under the new requirements, as of January 18, 2014, lenders must provide borrowers, at 220
least three days prior to loan closing, copies of all written tools that were utilized to 221
assist the lender in determining the value of the collateral for the loan. This change will 222
likely have an impact in the marketplace, as borrowers may demand more information 223
pertaining to the processes used by the lender in determining the value of the collateral. 224
What information needs to be provided for client expectations of AVPs use to be met? 225
Clients utilizing AVPs may have varying needs for the type and amount of data and 226
analytics they require. While some clients may simply be seeking a current opinion of a 227
property’s value, others may desire trends, inventories, or numerous other factors as 228
part of their business needs. This is one reason that a number of different AVPs exist, 229
since not all clients seek the same information. 230
Some clients may believe that appraisals may limit the amount of data and information 231
an appraiser can communicate to a client. For example, it may be believed that an 232
appraisal can only provide an analysis of three comparable sales; or that the appraiser 233
cannot communicate more information than an appraisal report allows for in the spaces 234
provided on the form. 235
Most educated clients understand that appraisals may include more than just three 236
comparable sales; in fact, many clients require more. And while it may be true that the 237
forms being used include Uniform Appraisal Dataset (UAD)10 requirements, it is also 238
912 CFR 1002.14
10
widely understood that appraisal reports often include addenda, which allow for 239
communication of far more information than the constraints of the form. 240
III.
AVPs and USPAP
241
Do AVPs comply with USPAP? The “quick and dirty” answer is maybe, but it’s 242
unlikely. The rationale is relatively simple: if an AVP requires the same development 243
and reporting requirements as an appraisal, then why would the AVP be created in the 244
first place? The ASB does not deem any valuation product or form as “USPAP-245
compliant.” It is the position of the ASB that appraisers, not valuation forms or products, 246
bear the burden of USPAP compliance. 247
As indicated previously, there are a wide variety of AVPs in existence. Therefore, it 248
follows that the level of knowledge, training, and expertise required to utilize an AVP 249
may vary significantly. One might conclude that providing an opinion of value using 250
an AVP is “simpler” (or requires less expertise) than providing an opinion of value in 251
an appraisal. However, one should take care in making any such assumption. 252
Individuals completing AVPs typically obtain data from sources similar to those 253
utilized when performing an appraisal. It is possible that some AVPs may restrict the 254
scope of work to utilizing data provided by the client, while other AVPs may require an 255
analysis of more (or different) data than is typically analyzed in performing an 256
appraisal. 257
There are also schools of thought that suggest the continued use of “standardized 258
forms” (such as the Fannie Mae/Freddie Mac appraisal report forms) may result in 259
lesser quality opinions of value. Those in this camp suggest that some appraisers 260
simply become “form fillers” who are seeking to simply provide enough information to 261
complete the form, and lose perspective of the “big picture” in terms of communicating 262
all pertinent information to the client. This perceived lack of flexibility may result in 263
inferior analyses as well, since the appraiser may only do what is absolutely necessary 264
in order to complete the form. Proponents of some AVPs believe their products go a 265
long way to reduce this perceived problem. 266
Is an AVP USPAP-Compliant?
267
As discussed previously, no form or product, in and of itself, is USPAP-compliant. 268
Some forms or products, completed properly, may very well comply with USPAP for 269
certain assignments. However, the responsibility for complying with USPAP rests with 270
the appraiser. 271
Because it is possible that an AVP complies with USPAP, it is possible that a state-272
licensed or state-certified appraiser can perform assignments using AVPs. If an AVP 273
does not allow for compliance with USPAP, a state-licensed or state-certified appraiser 274
may be able to perform the assignment, but that is based on the state law where the 275
appraiser is credentialed. 276
11
Many states require their credentialed appraisers to comply with USPAP for all
277
opinions of value, not just those required by Title XI of FIRREA. In these states, those 278
appraisers may only perform an AVP if the result is USPAP-compliant. In other states, 279
credentialed appraisers may only be required to comply with USPAP for appraisals 280
performed in conjunction with Title XI of FIRREA, but may perform assignments that 281
do not comply with USPAP for other types of transactions. Lastly, some states have 282
certain “exemptions” for USPAP compliance specifically built into their statutes. An 283
example may be a state where the credentialed appraisers are not required to comply 284
with USPAP for certain functions performed as an employee of a federally regulated 285
financial institution. Guidance from the ASB can be found in Advisory Opinion 21 286
(AO-21), USPAP Compliance.11 The following excerpt is from lines 32 through 41: 287
2. What is the relationship between Valuation Services and Appraisal Practice? 288
A key to distinguishing an appraiser’s obligations is understanding the relationship between
289
“valuation services” and “appraisal practice” in USPAP. Appraisal practice is a subset of
290
valuation services.
291
“Valuation services” are services pertaining to aspects of property value. Appraisers and
292
others for whom value is an issue provide valuation services. Examples include appraisal,
293
brokerage, auctioning, property management, advocate consulting, appraisal consulting and
294
collecting market data.
295
“Appraisal practice” is defined as valuation services performed by an individual acting as an
296
appraiser. Only appraisers may offer services that are considered appraisal practice.
297
Examples include appraisal, appraisal consulting, and collecting market data (acting as an
298
appraiser).
299
Since USPAP obligations apply to those who are acting as appraisers, USPAP applies to
300
appraisal practice.
301
Another pertinent excerpt from AO-21 can be found in lines 111 through 126: 302
7. What are the USPAP obligations for valuation services outside of appraisal 303
practice? 304
As previously stated, many individuals have other professional roles in addition to their
305
appraiser role. For example, some appraisers are also attorneys, accountants, brokers, or
306
consultants. USPAP also places an obligation on an individual who sometimes acts as an
307
appraiser even when he or she provides a valuation service in some other capacity – that
308
obligation being not to mislead the users of the valuation service about the capacity in which
309
he or she is acting. The ETHICS RULE states that an appraiser must not misrepresent his or
310
her role when providing valuation services that are outside of appraisal practice. If a
311
valuation service is premised on advocacy or compensation arrangements that are contrary
312
to the ETHICS RULE, the valuation service is not consistent with the objectives of USPAP
313
and cannot be performed by the individual acting as an appraiser.
314
112014-15 edition, Uniform Standards of Professional Appraisal Practice (USPAP), pp. A-64 – A-72
12
An individual who sometimes provides services as an appraiser, but who is currently acting
315
in another role, must ensure that intended users are not misled as to the individual’s role in
316
providing that valuation service. This can be accomplished through such means as
317
disclosure, notification, or careful distinction when providing the valuation service as to the
318
individual’s role. Additionally, clear representation of the valuation services to be rendered
319
in the engagement communication, scope of work description, or contract, as well as in
320
written and oral correspondence with the client should assist in ensuring intended users are
321
not misled.
322
In addition to the guidance offered in AO-21, the ASB offers additional guidance in 323
Advisory Opinion 13, Performing Evaluations of Real Property Collateral to Conform with
324
USPAP.12 Lines 62 through 66 in AO-13 state: 325
If an individual is engaged to provide information or analysis that does not include an
326
opinion of value, the assignment is neither an appraisal (per USPAP), nor an evaluation (per
327
Agencies' Guidelines). However, if the individual providing that service is acting as an
328
appraiser (as defined in USPAP), the assignment would be appraisal practice and the
329
appraiser would be obligated to comply with the ETHICS RULE, the COMPETENCY
330
RULE, and the JURISDICTIONAL EXCEPTION RULE.
331
Lines 102 through 108 in AO-13 state: 332
Reporting the Results of an Evaluation 333
When reporting evaluations, appraisers need to be aware that the evaluation content,
334
described in the Agencies’ Guidelines, may differ from the content required for appraisal
335
reports under STANDARD 2 (see Advisory Opinion 11). It is important that the contents
336
of all appraisal reports satisfy the requirements of STANDARD 2 as well as all applicable
337
assignment conditions. In many cases, an Appraisal Report may be required, but in other
338
cases, a Restricted Appraisal Report may be sufficient if expanded to include all of the
339
content requirements for an evaluation.
340
Lastly, lines 139 through 142 in AO-13 state: 341
Conclusion 342
An evaluation, when performed by an individual acting as an appraiser, is an appraisal.
343
In addition to complying with USPAP, the appraiser must be aware of and comply with
344
any additional assignment conditions and reporting requirements imposed on the
345
assignment.
346
The bottom line: 1) assignments performed in conjunction with Title XI of FIRREA 347
require a USPAP-compliant appraisal performed by a state-licensed or state-certified 348
appraiser; and 2) state law dictates the circumstances, if any, where a state-licensed or 349
state-certified appraiser can provide an opinion of value without complying with 350
USPAP. Therefore, it is necessary for state-credentialed appraisers to check with the 351
12
13
state(s) in which they hold a license or certification for a definitive answer as to the 352
circumstances, if any, under which the appraiser may perform an AVP. 353
Note: A representative sampling of state perspectives on this issue can be found in the 354
Appendix. 355
Another issue for state-credentialed appraisers to consider is how their Errors and 356
Omissions (E&O) insurance addresses providing opinions of value developed utilizing 357
AVPs. Because coverage and benefits may very well vary from insurance company to 358
insurance company, it is highly recommended to contact your specific insurer for 359
additional information. 360
It is also worth noting that individuals who are not appraisers perform a number of 361
AVP assignments. Because Title XI of FIRREA does not address these types of 362
assignments, individuals without an appraiser credential may utilize AVPs (subject to 363
state law requirements). 364
14
15
17
18
Arizona
3/09 APPRAISERS REQUESTED TO PERFORM A BROKERS PRICE OPINION (BPO) ARE URGED TO CHECK USPAP BEFORE ACCEPTING THE ASSIGNMENT.
A.R.S. § 32-3602 provides that the Board of Appraisal statutes do not apply to “a real estate broker or salesperson who is licensed in this state and who, when acting as such, gives an opinion as to the price of real estate if this opinion is not referred to as an appraisal”.
An appraiser who is also a real estate broker or salesperson and who is requested to perform a brokers price opinion (BPO) is urged to refer to USPAP before accepting the assignment:
• Advisory Opinion 21, USPAP Compliance. Illustration #1 “Brokerage and Appraisal”
19
Idaho
JOINT GUIDELINE ON BROKER PRICE OPINIONS (BPOs) Idaho Real Estate Appraiser Board and Idaho Real Estate Commission Page 1 – June 2011
IDAHO REAL ESTATE COMMISSION IDAHO REAL ESTATE APPRAISER BOARD IREC Guideline #20
July 2011
JOINT GUIDELINE ON BROKER PRICE OPINIONS (BPOs)
The Idaho Real Estate Appraisers Act (Appraiser Act) prohibits all persons who are not licensed or certified by the Idaho Real Estate Appraiser Board (Appraiser Board) from doing any type of real estate appraisal, including an analysis, opinion or conclusion relating to the value of real estate. The Appraiser Act does grant exceptions for licensed real estate salespersons and brokers. This Guideline addresses the scope and application of those exceptions.
1. Comparative Market Analysis Exception. The first exception relates to price opinions for a prospective listing or a prospective sale:
[A] licensed real estate broker, associate broker or salesperson who, in the ordinary course of his business gives an opinion of the price of real estate for the purpose of a prospective listing or sale, provided that such person does not represent himself as being a state licensed or certified real estate appraiser (Idaho Code 54-4105(2)).
This exception allows any real estate licensee – salesperson or broker – to prepare and present a price opinion for the purpose of a prospective listing or a prospective sale, also known as a Comparative Market Analysis (CMA). Licensees may not represent or mislead someone into thinking they are licensed or certified real estate appraisers, unless they are.
2. Brokers Price Opinion Exception. The second exception relates to broker price opinions (BPOs):
[A] real estate broker or associate broker licensed under chapter 20, title 54, Idaho Code, whose license is active and in good standing, from rendering a broker’s price opinion, for which the broker may charge a fee, provided the broker’s price opinion complies with the following requirements:
(a) The broker’s price opinion shall be in writing and contain the following:
(i) A statement of the intended purpose of the price opinion; (ii) A brief description of the subject property and property interest to be priced;
20
(iii) The basis of reasoning used to reach the conclusion of the price, including the applicable market data and/or capitalization computation;
(iv) Any assumptions or limiting conditions;
(v) A disclosure of any existing or contemplated interest of the broker(s) issuing the opinion;
(vi) The name and signature of the broker(s) issuing the price opinion and the date of its issuance;
(vii) A disclaimer that, unless the broker is licensed under the Idaho real estate appraisers act, chapter 41, title 54, Idaho Code, the report is not intended to meet the uniform standards of professional appraisal practice;
The broker’s price opinion permitted under this chapter may not be used as an appraisal, or in lieu of an appraisal, in a federally related
transaction. (Idaho Code 54-4105(3).)
Under this exception, a real estate broker may prepare and render a BPO for purposes other than procuring listings and sales. This exception is strictly limited to those holding an active associate or designated broker license. BPOs prepared by a broker must include all of the content
requirements noted in the Appraiser Act.
A BPO may not be used in place of an appraisal for a federally related transaction, which is defined in the Appraiser Act as “any real estate related financial transaction that a federally regulated institution, regulatory agency, or the resolution trust corporation engages in, funds, contracts for, or regulates” (Idaho Code 54-4104(6)).
Enforcement. The licensing requirements and exceptions contained in the Appraiser Act are regulated by the Appraiser Board. Real estate licensees who violate the Appraiser Act may find themselves before the Appraiser Board facing allegations of unlicensed practice of appraisal. The Real Estate Commission takes the position that if a licensee violates the Appraiser Act in
preparing or rendering a BPO or other unlawful activity, that licensee may also be subject to discipline under the Real Estate License Law for dishonest and dishonorable dealings (Idaho Code 54-2060). This means that a finding of unlicensed practice by the Appraiser Board may lead to additional discipline imposed by the Real Estate Commission.
NOTE: The Idaho Real Estate Appraiser Board and the Idaho Real Estate Commission are more interested in obtaining compliance with the laws pertaining to BPOs than initiating discipline for violations.
Payment of Fees. The Real Estate License Law provisions pertaining to broker supervision and fee splitting apply to BPOs. The Real Estate Commission requires an associate broker who prepares a BPO to notify his/her designated broker (Idaho Code 54-2038(3)). In addition, the associate broker may not accept any fee except through the designated broker (Idaho Code 54-2038(3)).
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FREQUENTLY ASKED QUESTIONS
Question #1: A lender calls a real estate broker and requests a BPO and the lender would or could not disclose the intended purpose of the BPO. May the broker render a BPO that complies with Idaho law?
Answer: No. The statute plainly states that a BPO must contain a statement of its intended purpose, and it must be included in the BPO. The Uniform Standards of
Professional Practice (USPAP) and the Appraiser Board interpret “purpose” to mean how the BPO is going to be used. Examples may include for estate planning purposes,
dissolution of a partnership, refinance of a mortgage, short sale negotiations or
determination, loan modification, loan origination, insurance purposes, etc. Any purpose that is for a federally related transaction would be unlawful in Idaho (see previous definitions).
Question #2: A lender calls a real estate salesperson and requests a BPO. May a salesperson render the BPO?
Answer: No. Some states allow salespersons to render BPOs, but Idaho law is very clear that only actively-licensed brokers may render BPOs. Unfortunately, many lenders have contacted Idaho salespersons (or inactive brokers) and requested BPOs. In some cases, the lenders have assured the salespersons it is perfectly fine for these licensees to render the BPOs, and many licensees have relied on these statements. If the salesperson renders a BPO, the salesperson would be violating Idaho law and may be subject to disciplinary action by the Appraiser Board, the Real Estate Commission, or civil action under Idaho law. Salespersons who receive requests to render BPOs should decline the requests and/or forward those requests to their designated brokers.
Question #3: What if the lender discloses that it wants to use the BPO in its consideration of a short sale? Or a foreclosure? Or a modification of an existing loan? Is a broker restricted from rendering a BPO for these intended purposes?
Answer: Not necessarily. The purpose of the “statement of intended purposes” is to define the context of the price opinion. It is the lender’s responsibility – not the broker’s – to comply with any requirement that the written valuation be performed by a state certified or licensed appraiser. Of course, and unless the broker is in fact licensed under the Real Estate Appraiser Act, the broker must include the required disclaimer that the BPO “is not intended to meet the uniform standards of professional appraisal practice.” Brokers must also include a disclaimer, in the language of the statute, that the BPO “may not be used as an appraisal, or in lieu of an appraisal, in a federally-related transaction.”
Question #4: May a salesperson assist a broker in preparing a BPO?
Answer: Yes, but only if the broker rendering the BPO is the designated broker for the assisting salesperson and the assisting salesperson is acting on behalf of, and under the control and supervision of, the designated broker as required by the License Law. A salesperson who assists his or her designated broker will not be deemed to be engaging in the unlicensed practice of appraisal. Likewise, a salesperson may assist an associate broker in preparing a BPO, if both the salesperson and the associate broker are licensed at
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the same brokerage, the designated broker has knowledge of and consents to the
assistance, and both the salesperson and associate broker are acting under the control and supervision of their designated broker.
Question #5: Who oversees the quality of a BPO? In other words, what happens to a licensee who renders an inaccurate BPO?
Answer: As long as a broker meets the BPO requirements of Idaho Code 54-4105(3), the Appraiser Board has no jurisdiction. A BPO is merely one broker’s opinion of price, not value, and as such, the Real Estate Commission will not get involved in complaints regarding the quality or accuracy of a BPO. However, a broker may be subject to civil liability by an injured party. A real estate licensee who performs BPOs should review his Errors & Omissions insurance policy to confirm coverage.
Question #6: Is there a difference in an estimate or opinion of "price" and "value"?
Answer: Yes. “Price” is considered to be a fact and may change based upon factors unrelated to value such as the seller being relocated to another city, experiencing financial difficulties and needing to sell the property in a shorter period of time, or other personal circumstances unrelated to value such as a divorce or loss of a job. It is defined in USPAP as “the price paid for a property [which] may or may not have any relation to the value”.
An opinion of “value” is never a fact since it is an economic concept and always an opinion of the worth of a property at a given time related to a specific definition of value. Types of value may include market value, salvage value, liquidation value, distressed value, etc. Any statement of value must also include its relationship to time. For example, if the market value of a property is estimated to be $150,000 and the typical marketing time is 12-15 months, and a client then requests a value estimate based upon a 3-6 months time frame, it is likely that the value would be adjusted downward for the shorter marketing period.
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Nebraska
Nebraska Statutes 81-885.16 - Real Property Appraiser Act;
applicability; broker's price opinion
Nebraska Statutes > Chapter 81 > § 81-885.16 - Real Property Appraiser Act; applicability; broker's price opinion or comparative market analysis; requirements
Current as of: 2010
(1) The Real Property Appraiser Act shall not apply to a person licensed under the Nebraska Real Estate License Act who, in the ordinary course of his or her business, gives a broker's price opinion or comparative market analysis, except that such opinion or analysis shall not be referred to as an appraisal.
(2) No compensation, fee, or other consideration shall be charged for a broker's price opinion or comparative market analysis other than a real estate commission or brokerage fee charged or paid for brokerage services rendered in connection with the sale of the real estate involved unless the opinion or analysis is in writing, is signed by the preparer, includes the date on which it was prepared, and contains or has attached thereto the following disclosure in bold fourteen-point type: This opinion or analysis is not an appraisal. It is intended only for the benefit of the addressee for the purpose of assisting buyers or sellers or prospective buyers or sellers in deciding the listing, offering, or sale price of the real property or for lending purposes in a transaction other than a federally related transaction. This opinion or analysis is not
governed by the Real Property Appraiser Act.
(3) A broker's price opinion or comparative market analysis prepared for an existing or potential lienholder originating, extending, renewing, or modifying a loan in a transaction other than a federally related transaction may not be used as the sole basis to determine the value of the real estate for the purpose of originating a loan secured by such real estate, and the person giving the opinion or analysis must be engaged directly by the lienholder or its agent. Such person shall have no duty to inquire as to any other basis used to determine such value.
Laws 2010, LB931, § 28.Effective Date: April 15, 2010
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Nevada
STATE OF NEVADA
DEPARTMENT OF BUSINESS AND INDUSTRY
REAL ESTATE DIVISION
788 Fairview Drive, Suite 200 * Carson City, NV 89701-5453 * (775) 687-4280 2501 East Sahara Avenue, Suite 102 * Las Vegas, NV 89104-4137 * (702) 486-4033
e-mail: realest@red.state.nv.us http://www.red.state.nv.us
BROKER PRICE OPINIONS (BPO’s)
What are they? Who can perform them? When is performing a BPO against the law?
What are they?
A BPO is a tool utilized by the real estate industry to determine a competitive listing price on a property. Brokers/salesman commonly use BPO’s to show sellers what other similar homes have sold for in their neighborhood and to assist the seller in determining a listing price. BPO’s are not appraisals and should not be used for any purpose other than described herein.
Who can perform them?
A real estate broker/salesperson may perform a BPO for the purpose of listing/selling a property.
When is performing a BPO against the law?
When a real estate broker/salesperson prepares a BPO for any reason other than listing and selling a property and receives compensation they have violated Nevada Revised Statues 645C.
Why?
Nevada is a mandatory licensing state which requires anyone who provides an opinion of value (or market value) on any real property located in the State of Nevada to first obtain a license or certification.
NRS 645C.030 “Appraisal” defined. “Appraisal” means an analysis, opinion or conclusion, whether written or oral, relating to the nature, quality, value or use of a specified interest in, or aspect of, identified real estate for or with the expectation of receiving compensation.
(Added to NRS by 1989, 822)
NRS 645C.040 “Appraiser” defined. “Appraiser” means a person who prepares or communicates an appraisal, but does not include anyone who merely relays an appraisal on behalf of the person who prepares it.
(Added to NRS by 1989, 822)
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Further, USPAP defines appraisal and appraisal practice as follows:
Appraisal: (noun) the act or process of developing an opinion of value; an opinion of value. (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.
Appraisal Practice: Valuation services performed by an individual acting as an appraiser including but not limited to appraisal, appraisal review, or appraisal consulting.
Who is Exempt?
NRS 645C.150 Applicability of chapter. The provisions of this chapter do not apply to: 1. A federal or state employee, or an employee of a local government, who prepares or
communicates an appraisal as part of his official duties, unless a license or certificate is required as a condition of his employment.
2. A person appointed to evaluate real estate pursuant to chapter 152 of NRS or NRS 269.125, except as required by the appointing judge.
3. A board of appraisers acting pursuant to NRS 269.135.
4. A person licensed pursuant to chapter 645 or 684A of NRS, or certified pursuant to chapter 645D of NRS, while he is performing an act within the scope of his license or certificate.
5. A person who makes an evaluation of real estate as an incidental part of his employment for which special compensation is not provided, if that evaluation is only provided to his employer for internal use within the place of his employment.
6. A person who makes an assessment of the value of property in connection with a judicial proceeding for eminent domain brought pursuant to chapter 37 of NRS.
(Added to NRS by 1989, 823; A 1991, 887; 1997, 1797; 2005, 522)
Penalties
The Commission of Appraisers of Real Estate may impose an administrative fine of up to $5,000 to anyone who engages in any activity for which a license or certificate is required pursuant to NRS 645C. Brokers/salesman preparing BPO’s and receiving compensation for any purpose other than listing/selling a property can be subject to a fine of up to $5,000.
NRS 645C.555 Administrative fine for engaging in certain conduct without certificate, license, registration card or authorization; procedure for imposition of fine; judicial review; exceptions.
1. In addition to any other remedy or penalty, the Commission may impose an administrative fine against any person who knowingly:
(a) Engages or offers to engage in any activity for which a certificate, license or registration card or any type of authorization is required pursuant to this chapter, or any regulation adopted pursuant thereto, if the person does not hold the required certificate, license or registration card or has not been given the required authorization; or
(b) Assists or offers to assist another person to commit a violation described in paragraph (a). 2. If the Commission imposes an administrative fine against a person pursuant to this section, the amount of the administrative fine may not exceed the amount of any gain or economic benefit that the person derived from the violation or $5,000, whichever amount is greater.
3. In determining the appropriate amount of the administrative fine, the Commission shall consider:
(a) The severity of the violation and the degree of any harm that the violation caused to other persons;
(b) The nature and amount of any gain or economic benefit that the person derived from the violation;
(c) The person’s history or record of other violations; and
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4. Before the Commission may impose the administrative fine, the Commission must provide the person with notice and an opportunity to be heard.
5. The person is entitled to judicial review of the decision of the Commission in the manner provided by chapter 233B of NRS.
6. The provisions of this section do not apply to a person who engages or offers to engage in activities within the purview of this chapter if:
(a) A specific statute exempts the person from complying with the provisions of this chapter with regard to those activities; and
(b) The person is acting in accordance with the exemption while engaging or offering to engage in those activities.
(Added to NRS by 2003, 1297)
In conclusion, real estate licensees should not perform BPO’s for any purpose other than to assist a seller in determining a price to list a property. Real Estate licensees performing BPO’s for any other purpose are in violation of NRS 645C and will be subject to a fine of up to $5,000.00.
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New Jersey
November 27, 2012 ADVISORY OPINION
The New Jersey Real Estate Appraisers Board (the “Board”) is aware that uncertainty exists regarding the question whether state licensed real estate brokers (the term “broker” is herein used in a generic sense, and includes licensed brokers, salespersons, broker/salespersons and/or agents) may prepare “Brokers’ Price Opinions” (hereinafter “BPO”s) without violating New Jersey law. Specifically, the Board has received inquiries whether brokers who prepare BPOs are engaged in the unlicensed practice of appraising, and has also received complaints asking that the Board investigate and/or take legal action against brokers preparing BPOs.
In order to provide general guidance to the public, to include both licensees of the Board and licensees of the Real Estate Commission, the Board issues the following Advisory Opinion. It is the Board’s intent, through the issuance of this Advisory Opinion, to provide notice of the Board’s position on issues regarding the preparation of BPOs by persons other than licensed or certified appraisers. While the Advisory Opinion is offered to provide general guidance to the public, it is not intended to be, nor may it be considered to constitute, a formal Attorney General’s opinion.
For the reasons set forth below, the Board advises that a “BPO” is an “appraisal” under New Jersey law. Given that predicate, anyone other than a licensed appraiser who prepares a BPO engages in the unlicensed practice of appraising, unless he or she prepares the BPO pursuant to a specific statutory exemption (see additional discussion of exemptions below).
An appraisal is defined under New Jersey law to be “an unbiased analysis, opinion or conclusion relating to the nature, quality, value or utility of specified interests in, or aspects of, real estate.” N.J.S.A. 45:14F-2. An “appraisal report” is defined to be “any written
communication of an appraisal.” Id. The Uniform Standards of Professional Appraisal Practice, which are incorporated by reference in their entirety within the Board’s regulations, see N.J.A.C. 13:40A-6.1(a), define an “appraisal” generally to be “an opinion of value,” and define the term “report” to encompass “any communication, written or oral, of an appraisal . . .” The Board takes the position, for purposes of the analysis herein, that a written report which communicates an opinion of the value of an interest in real estate is an “appraisal report.”
The term BPO is not defined within New Jersey law. The term does not appear in the Real Estate Appraisers Act or in any of the Board’s regulations, nor does it appear in the statutes governing the practice of real estate brokers and salesmen, see N.J.S.A. 45:15-1, et seq. or in any regulations adopted by the Real Estate Commission, see N.J.A.C. 11:5-1.1 et seq. A BPO is defined, under federal law (within the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), to be “an estimate prepared by a real estate broker, agent, or sales person that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property’s condition, market, and neighborhood, and
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information on comparable sales, but does not include an automated valuation model.” H.R. 4173 at §1126(b). For purposes of the analysis herein, the Board adopts the definition of BPO found in the Dodd-Frank Act. It is the Board’s position that any report that details the probable selling price of a property must also be considered to be a report communicating an opinion upon the value of that property. Accordingly, a BPO is an “appraisal” under New Jersey law.
The Real Estate Appraisers Act mandates that appraisals of real property situate in New Jersey can only be performed by state licensed or certified appraisers. Accordingly, unless a specific exemption applies under state law, brokers who prepare BPOs in New Jersey are engaged in the unlicensed practice of appraising.
There are two provisions of the Real Estate Appraisers Act which may operate to exempt brokers preparing BPOs from appraiser licensure requirements. A broker may legally prepare a BPO if the BPO is:
– prepared for the purpose of giving “counsel and advice on pricing, listing, selling and use of real property, directly to a property owner or prospective purchaser, if the intended use of the counsel or advice is solely for the individual knowledge of or use by the
property owner or prospective purchaser.” N.J.S.A. 45:14F-21(c)2 ; or
– prepared for a State or federally chartered bank, savings bank, or savings and loan association, in those circumstances “where the underlying transaction is a federally related transaction for which federal law and regulation do not require that a certified or licensed appraiser be used.” N.J.S.A. 45:14F-21(f).
The Board maintains that the exemption set forth at N.J.S.A. 45:1-21(c) – that is, for the provision of counsel and advice on pricing, listing, selling and use of property – must be
interpreted to apply only when a broker is engaged in a transactional relationship with a property owner or identifiable prospective purchaser of a specific property, and when the broker then elects to prepare a BPO directly for the sole use of the individual client. Alternatively stated, the Board suggests that the exemption applies only when the broker has a commercial and/or professional relationship with the prospective purchaser or property owner. Even in those
situations, it remains the case that the BPO can only be prepared for the individual knowledge of or use by the property owner or prospective purchaser, and not for any other purpose. The Board points out that any broader interpretation of the statutory exemption could effectively eviscerate appraisal licensure requirements, because it would then provide brokers with potentially limitless authority to prepare appraisals on New Jersey properties.
The second statutory exemption set forth at N.J.S.A. 45:14F-21(f) applies only to state or federally chartered banks, savings banks and/or savings and loan associations, and only to those “federally related transactions” where federal law and regulation do not require the use of a certified or licensed appraiser. While the Board will not herein seek to analyze the scope of the subsection (f) exemption, the specified financial institutions may opt to engage brokers to
prepare BPOs upon properties for the specified transactions, and brokers preparing BPOs for use in those circumstances would not violate state law.
Any broker who prepares a BPO for any purpose or user other than those excluded by operation of N.J.S.A. 45:14F-21(c) and/or 45:14F-21(f) engages in the unlicensed practice of
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appraising. The unlicensed practice of appraising, in turn, is punishable by fines of up to $10,000 for a first violation and $20,000 for each subsequent violation.
Given the ambiguity that has existed prior to the issuance of this Advisory Opinion, the Board has determined that it will exercise prosecutorial discretion, and not seek to penalize or take action(s) against any brokers who may have previously prepared BPOs for impermissible purposes or uses. Brokers are cautioned, however, that they should immediately cease and desist from engaging in the preparation of BPOs for any uses other than those permissible under New Jersey law. Failure to do so may expose a broker to penalties for the unlicensed practice of appraising
SUPPLEMENT
In order to provide additional guidance, set forth below are additional questions and answers generally regarding appraisals and BPOs. The questions and answers should be considered to provide additional information outlining the position set forth herein, and should thus be considered to be incorporated within, and a part of, this Advisory Opinion.
1) Can a broker prepare a BPO provided that he or she includes a statement in the BPO that the BPO is not to be considered to be an appraisal?
A broker can only legally prepare a BPO in New Jersey if the BPO is prepared pursuant to one of the two statutory exemptions discussed above. Neither the inclusion of, nor the failure to include, a “disclaiming” statement in any way alters the analysis whether or not a BPO is in fact an appraisal, nor the analysis whether the BPO can be legally prepared.
2) What are examples of impermissible uses of a BPO, or impermissible clients for whom a BPO might be prepared?
While it would be impossible to catalogue a complete list of potential impermissible uses and/or clients, the Board suggests that BPOs prepared for the following uses or clients are likely to be outside the scope of the statutory exemptions, and thus illegal under New Jersey law:
– BPOs prepared for use in tax appeal proceedings;
– BPOs prepared for use in judicial or quasi-judicial proceedings where the value of property is an issue to be determined;
– BPOs prepared for use in determining the value of property for the purpose of loan origination;
– BPOs prepared for mortgage service companies or asset managers for purposes such as loan origination, loan modifications, short sales portfolio valuation, etc.
3) What are the consequences or potential penalties for preparing a BPO?
The Board is authorized, under state law, to investigate and to penalize individuals who engage in the unlicensed practice of real estate appraising. The Board has broad investigative powers, and is authorized to hold hearings to determine whether an unlicensed person has engaged in unauthorized practice. Following a hearing, the Board can enter Orders requiring unlicensed persons to cease and desist from continued unlicensed practice, and is authorized to
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assess penalties of up to $10,000 for a first violation, and up to $20,000 for each subsequent violations.
While the Board cannot order the suspension or revocation of a broker’s license, it is possible that licensed brokers or salespersons could be subject to such actions by the Real Estate Commission.
4) What is a “CMA”? Is a “CMA” the equivalent of a “BPO.”?
The Board declines to seek to interpret the regulations of the Real Estate Commission, but points out that the term “comparative market study or analysis” (“CMA”) only appears within one paragraph of those regulations, specifically N.J.A.C. 11:5- 6.1(m)(3). The
Commission’s rules state that a CMA is not an appraisal, and the Commission’s regulations state that the term “appraisal” is to be “given its technical meaning as a study and analysis by an appraiser authorized by law to perform appraisals of New Jersey real estate to ascertain fair market value by using a process in which all factors that would fix price in the market place must be considered.” N.J.A.C. 11:5-6.1(m)(3). The Commission’s rules further provide that any written CMA is to “include a statement that the CMA is not an appraisal and should not be considered the equivalent of an appraisal.”
Given that the Real Estate Commission’s regulations do not define the term CMA, it is impossible for the Board to take a position whether a CMA would or would not fall within the definition of an appraisal under New Jersey law.
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North Carolina
2011-2012 U
PDATEC
OURSEB
ROKER
P
RICE
O
PINIONS
Editor’s Note: This article written in July 2011 expressed the law as it existed in North Carolina
until October 1, 2012, on which date legislation passed by the NC General Assembly in June 2012 became effective that significantly changed a broker’s ability to perform a BPO. The new law effective October 1, 2012 is discussed in the 2012-2013 Real Estate Update course materials in the Section titled “License Law, Commission Rule and Other Law Changes.”OUTLINE:
INTRODUCTION EXAMPLES
REASONABLE PROSPECT OF LISTING
ADDITIONAL OBSERVATIONS
Learning Objective
:
Upon completing this Section, licensees should have a betterunderstanding of the law governing “broker price opinions” and the circumstances under which it is appropriate for a real estate broker to perform a broker price opinion for a fee.
I
NTRODUCTIONThe North Carolina Appraisers Act (N.C.G.S. Chapter 93E) provides that anyone performing an appraisal in North Carolina must be licensed by the North Carolina Appraisal Board as an appraiser. The law defines a real estate appraisal as: “... an analysis, opinion, or conclusion as to the value of identified real estate or specified interests therein performed for compensation or other valuable consideration.” However, the law also distinguishes and defines a comparative market analysis as “... the analysis of sales of similar recently sold properties in order to derive an indication of the probable sales price of a particular property by a licensed
real estate broker.”
The North Carolina Appraisers Act specifically exempts from the licensure requirements a comparative market analysis (CMA) only when it is performed by a licensed real estate broker
for a prospective or actual brokerage client or when it involves real property in an employee relocation program, provided that the broker does not hold himself or herself out as being
state-licensed or state-certified as a real estate appraiser. [See G.S. 93E-1-3(c).]
Real estate brokers are sometimes approached by lenders, REO (“real estate owned”) asset managers, and others, and asked to perform a “broker price opinion” for a fee. Although a broker price opinion (BPO) is not defined in the statute, it is an opinion of the value of real
