Do Real Estate Agents and Brokers Know The Value of a Home?

Dennis Norman

“Generally speaking, real estate agents and brokers are not independent or properly trained valuation specialists.”  This was said in a letter from several appraiser organizations that was sent to Treasury Secretary Timothy Geithner last week.  The letter, not actually signed by anyone, but instead just bearing the names of the following four appraiser organizations; Appraisal Institute, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers and National Association of Independent Fee Appraisers, urged Secretary Geithner, and the administration, to discontinue using BPO’s (Broker Price Opinions) from real estate agents and brokers in connection with loan modifications under the Home Affordable Foreclosure Alternatives (HAFA) program as well as discontinue their use in connection with “foreclosure alternatives” including short-sales.

The letter indicates the organizations concerns about the use of BPO’s include:

• (use of BPO’s) will not adequately protect the public interest (consumer, borrowers, etc.) or the interests of the various parties to the loan (lenders, loan servicers, etc.)”
• (use of BPO’s) ”is likely to exacerbate mortgage fraud.”
• “real estate agents and brokers are not independent or properly trained valuation specialists.”
•  ”They (real estate brokers and agents)have an inherent bias towards quick results and action which produces a fee for themselves irrespective of whether the lender/services/investor/property owner/borrower gets a fair return on the short sale.
• “in at least twenty-three states the ability of a real estate agent or broker to perform a BPO is specifically limited to assisting a buyer or seller, or a potential buyer or seller, in establishing a listing or offering price for real property. “

Not surprisingly, the appraiser organizations’ letter suggests “any arrangements to encourage short sales must require competent appraisals prepared in accordance with the Uniform Standards of Professional Appraisal Practice.” 

The National Association of REALTORS(R) (NAR) Responds:

Two days after the appraiser’s letter went out, 2010 NAR President, Vicki Cox Golder, fired off a letter to Treasury Secretary Geithner defending the use of BPO’s.  In her letter Golder said there is a need for appraisers in a “purchase money mortgage transaction”  but that there is a “need for flexibility in any mortgage modification or short sale program to ensure all parties are treated fairly and appropriately.”  Golder added “in many cases a more appropriate and cost efficient measure is the broker price opinion.”

Countering some of the claims made by the appraisers, Golder offered the following in support of use of BPO’s prepared by real estate agents and brokers:

• “BPOs are completed by licensed real estate agents with a detailed knowledge and understanding of real estate pricing and local market trends developed through active participation in the listing, negotiation and sale of properties. This perspective offers a unique viewpoint that supports sound real estate decisions with accurate estimates of the value of real estate.”
• “BPOs are widely accepted in the real estate industry due to their established reliability and accuracy“
• “Title XI of FIRREA and the proposed Interagency Appraisal and Evaluation Guidelines both make clear that BPOs are appropriate in a wide range of circumstances. “
• “Fannie Mae and Freddie Mac permit BPOs in certain circumstances. The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board permit the use of BPOs in various programs they have adopted or proposed. BPOs are also accepted by banks, lenders, and all major loan servicers for a number of purposes.”
• “There is no evidence to support the assertion that appraisers are more or less likely to engage in mortgage fraud than real estate agents“
• “the assertion that at least 23 states limit BPO use to assisting buyers or sellers in establishing a listing or offering price for a property is simply incorrect. We urge you to examine the relevant state statutes and not accept this argument at face value, as we believe the use of BPOs for short sale and other purposes is clearly permissible in most, if not all, states”

What effect either letter will have, if any, is hard to say, but I’m sure we have not heard the end of the BPO battle.

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