The North Carolina General Assembly recently enacted important amendments to both the Real Estate License Law and the Appraisers Act regarding the extent to which a broker may perform a broker price opinion (BPO) or comparative market analysis (CMA) for a fee. The Real Estate Commission has adopted temporary rules implementing the License Law changes, effective October 1, 2012.
The Primary Law Changes
A “non-provisional” broker whose license is in good standing and on active status may prepare a broker price opinion (BPO) or comparative market analysis (CMA) and charge and collect a fee for the opinion. The BPO may now be performed for a fee for a variety of persons and entities for a variety of reasons, not just for actual or prospective brokerage clients. Note, however, that a provisional broker (i.e., a broker who has not completed all postlicensing courses and thereby removed his or her “provisional” status) may no longer perform a BPO or CMA for a fee for anyone. (The Appraisers Act previously allowed any real estate licensee to perform a CMA for a fee, but only for an actual or prospective client or for property involved in an employee relocation program.)
A broker who performs a BPO for a fee must provide the BPO in writing, estimating only the “probable selling or leasing price” of a property (not the “value” or “worth” of a property). The BPO must NOT be referred to as a “valuation” or “appraisal.” A broker may NOT prepare a BPO for an existing or potential lienholder (e.g., mortgage lender) where the BPO is to serve as the basis to determine the value of a property for the purpose of originating a mortgage loan, including first and second mortgages, refinances or equity lines of credit.
A “broker price opinion” and a “comparative market analysis” are defined as synonymous terms in both the Real Estate License Law and Appraisers Act.
Standards for Performing a BPO
The Commission’s rules set out the standards for performing BPOs and require that the broker:
• have knowledge of, and access to, market data in the subject property’s local area;
• exercise objective, independent judgment;
• inspect the subject property, unless the client expressly waives an inspection in writing;
• use methodology (analysis of comparable sales and/or income analysis) that is appropriate for the particular assignment;
• select comparable sold or leased properties and make necessary adjustments;
• include information about local market conditions and each method used in deriving the estimate of probable selling or leasing price; and
• explain the basis for any range in probable selling or leasing price when the higher figure exceeds the lower figure by more than ten percent.
Most of the standards addressed in the Commission rules for performing a BPO/CMA are not new! The Commission has for many years applied these standards to any CMA/BPO performed by a licensee, whether or not the CMA/BPO is performed for a fee, and these standards are required to be taught in prelicense and postlicense courses.
BPOs/CMAs Performed for NO FEE
Any broker (non-provisional or provisional) has always been permitted to perform a BPO/CMA for any party when NO FEE is charged, and this continues to be the case under the revised law and rules. Note that the Commission does not consider compensation of a broker for general brokerage services under a brokerage agreement to constitute a “fee” under the BPO law. Such services include the provision by a licensee of a CMA or BPO. Similarly, the possibility of entering into a brokerage agreement (and earning a brokerage fee) does not constitute a “fee” when a licensee performs a CMA/BPO for a prospective client without charging a fee for the CMA/BPO.
It is important for licensees to remember, however, that the Commission expects every CMA/BPO performed by a licensee to be performed in a competent manner and without any undisclosed conflict of interest, even if no fee is received for the CMA/BPO. Thus, as a practical matter, a licensee performing a CMA/BPO for no fee should still look to the standards described in the new Commission rules for guidance regarding the proper performance of a CMA/BPO.
Education on BPOs in Update Course, CE Electives and Real Estate Manual
The BPO law and rule changes are addressed in the current Real Estate Update Course, which licensees are urged to take as soon as possible. The Update coverage does not, however, attempt to address how to properly perform a BPO/CMA. For instruction on the proper performance of BPOs/CMAs, licensees are urged to attend a CE elective course on this topic that has been updated to reflect the recent law/rule changes. Updated coverage of proper performance of BPOs/CMAs will also be included in the next edition (2013-14 edition) of the Commission’s North Carolina Real Estate Manual that will be available in January 2013. The complete law and rule changes may also be found on the Commission’s Web site at www.ncrec.gov.
This article came from the October 2012-Vol43-2 edition of the bulletin.