Are You Shopping For a Broker Price Opinion (BPO) Or an Appraisal?

A Broker Price Opinion, sometimes called a competitive market analysis (CMA) by real estate agents and brokers, is a "tool developed by the real estate industry to determine a competitive listing price." [1] It is important for consumers to understand that Broker Price Opinions (BPO's) are not appraisal reports, and they do not carry the same weight.

As a real estate broker and a licensed appraiser in the State of Nevada I am often asked by potential customers if a Broker Price Opinion can be prepared for their banker, for bankruptcy court, for a divorce settlement or for some other use that is an entirely inappropriate use of a BPO. It is understandable that consumers do not want to pay for an appraisal report if they think they can get an equivalent product from a real estate agent or broker for free.

Broker Price Opinions are not, however, equivalent to appraisal reports and BPO's cannot legally conclude a market value opinion. Most of the BPO's that I have seen, even those prepared to procure commercial listings, are relatively poor substitutes for appraisals. Typically an agent displays what he believes to be similar property sales to those of the potential listing in an attempt to assist the seller with a price conclusion.

The appraisal process generally includes consideration for all three valuation methodologies, the income approach, the sales approach and the cost approach. A great deal of effort has been expended over the last 11 years trying to establish uniform standards in the appraisal profession. Broker Price Opinions don't require any standards, and they are not subject to review. Thus, the standards of practice and ethics imposed on an appraiser do not apply to an agent who completes a broker price opinion.

Some BPO's go further and display adjustments, and commercial agents feel compelled to provide an income and expense analysis with a capitalization rate. It is not difficult for a reader, or a regulator, to assume that a BPO with adjusted sales and a capitalized net income concludes a market value opinion whether that is stated as its purpose or not.

It is important to note that since broker price opinions are not required to utilize all appraisal methodologies, and are not completed by competent, licensed, valuation professionals, the possibility of an erroneous result is much more likely.

In Nevada, Broker Price Opinions cannot be prepared for any reason other than to provide a seller with a potential listing price for his property, and no compensation can be paid for this service. Agents or brokers who violate Nevada law and charge for BPO's or provide them for other than listing purposes can be fined up to $ 5,000 by the State. Consumers should realize that market value opinions can only be expressed by licensed appraisers, and that BPO's are not accepted as an appraisal substitute.

[1] State of Nevada, Department of Business & Industry, Real Estate Division, http://www.red.state.nv.us/publications/announcements/bpo.pdf

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Horizon Village Realty & Appraisal

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