Broker Price Opinions Can Violate Appraisers Act

The North Carolina Appraisers Act (N.C.G.S. § 93E) requires that anyone performing an appraisal in North Carolina must be licensed by the North Carolina Appraisal Board as an appraiser. The law specifically exempts a comparative market analysis (CMA) 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 person does not represent himself or herself as being state-licensed or state-certified as a real estate appraiser.

A comparative market analysis is defined in the law 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.

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’s price opinion (BPO) is not defined in the statute, it is an opinion of the value of real property and consequently an appraisal under the law, unless exempt as a CMA.

A broker who is not also a licensed or certified appraiser may provide a BPO only under the circumstances allowed for CMAs: a broker may receive a fee for performing a CMA or BPO as long as the CMA or BPO is performed for a present or prospective seller or buyer brokerage client on the property which is the subject of a present or prospective brokerage agreement. There must be a genuinely reasonable likelihood that the broker will enter into a brokerage agreement as a seller’s or buyer’s agent for the property that is the subject of the BPO for this exception to apply.

Consider the following scenarios:

1.  A broker performs a BPO for a fee for a homeowner who is considering selling his property, but who does not want to commit to a brokerage relationship at this time. This is acceptable under the Appraisers Act as the broker has a reasonable possibility of getting a listing from doing the BPO.

2.  A lender is considering whether to foreclose on a property. The lender asks three brokers to each perform a BPO, and lets the brokers know that one of the three will receive the listing if and when the property is foreclosed. This also is acceptable.

3.  A bank asks a broker to do a BPO. There is no mention of the purpose of the BPO, and no mention of whether the broker might get a listing from doing the BPO.  This is unacceptable. Under these circumstances, there is no reason for the broker to believe that he or she may obtain a listing on the property.

4.  A broker is asked to do a BPO for a loan modification. There is no possibility of a listing on that property, but the broker believes that if he or she performs the BPO, the broker might get a listing from the client on another property at some point in the future. This also is unacceptable.

In evaluating whether there exists a reasonable prospect of a listing, the controlling factors will include the express language of the assignment or contract, the nature or purpose of the transaction for which the BPO is to be performed, the relationship of the potential client to the property and his or her role in the transaction, and the history of the broker and potential client.

It is therefore important that brokers maintain records of any engagement letters or agency agreements describing the broker’s services, and have a clear understanding of the reason the BPO is being performed. Remember, a real estate broker who is not a licensed appraiser may only perform a BPO for a prospective or actual brokerage client or when it involves real property in an employee relocation program.

Employee relocation programs have frequently been a source of confusion.  Relocation companies often contact one or more real estate brokers to perform a CMA on a property which the company intends to purchase as part of an employee relocation plan. Typically, the company will then choose one of the brokers who prepared a CMA to list the property. In this situation, the relocation company may be considered a prospective brokerage client, and performing a CMA under those circumstances, for a fee, will not violate the Appraisers Act.

Anyone who obtains a copy of a BPO that appears to have been done in violation of the Appraisers Act may send a complaint to the North Carolina Appraisal Board and to the North Carolina Real Estate Commission. Both agencies will open and investigate the complaint and take whatever action is deemed necessary.

Note: If a broker performs a BPO, he or she cannot state that the conclusion is “market value”. The conclusion must be stated in terms of a probable sales price, and should state that it is not an appraisal.

This article came from the March 2011-Vol41-3 edition of the bulletin.