Appraisals and broker price opinions…here we go again - by Albert Franke

Connecticut has had mandatory appraiser licensing for many years, meaning that one must be licensed or certified to render an opinion of value, for any purpose. The exceptions to this law are limited. Persons under contract with a municipality for assessment or revaluation purposes, or real estate brokers and salespeople who estimate the value of real estate as part of a market analysis in pursuit of a listing, are exempted.

The general intent of the licensing statute is to protect the consumer and promote the public trust. After all, real estate appraisers estimate the value of real estate and real estate brokers and salespeople sell property. Makes sense, right? Apparently not to everyone. For several years, CT Realtors (the former Connecticut Association of Realtors), supported by the banks, has attempted to overturn the mandatory appraiser licensing law so that their members, brokers and salespeople, may estimate the value of real estate for a fee and for any purpose, through a Broker Price Opinion (BPO) or Comparative/Competitive Market Analysis (CMA). The banks are on board, of course, since a BPO is less expensive than an appraisal and takes less time to complete. Each time this has been attempted, common sense prevailed in the legislature and their efforts were defeated, most recently in this past legislative session. The Connecticut Chapter of the Appraisal Institute has successfully led the fight and will continue to do so.

So why is this important? Accurate estimates of value are needed for many reasons, every day. New mortgages, refinances, home equity loans, property tax assessment appeals, marital and partnership dissolutions, acquisitions and dispositions and the list goes on. Real estate appraisers, to become certified, must hold a four-year college degree, are required to have hundreds of hours of valuation-specific education, thousands of hours of experience and must pass a rigorous examination. Further, appraisers are required to comply with the Uniform Standards of Professional Appraisal Practice, as well as any supplemental client-imposed standards. They are subject to regulation by the Connecticut Real Estate Appraisal Commission. Appraisers have experience inspecting properties, applying analytical techniques and prescribed methodologies to the appraisal problem and then communicating those findings to the client, usually in a written report.

In the negotiation process during the last legislative session, the representatives of the appraisal community suggested a compromise where BPOs or CMAs could be done for a fee in situations where bank appraisal regulations require an opinion of value (called an “evaluation” in the rules), but do not require a formal appraisal, under the following conditions:

1. The broker or salesperson performing the BPO or CMA has completed a valuation course;

2. The Real Estate Commission establish minimum standards for the content of a BPO or CMA; and

3. The Real Estate Commission establish an enforcement mechanism to adjudicate any complaints received.

Unfortunately, CT Realtors’ leadership rejected this suggested compromise. The low-fee BPO typically falls to the new, inexperienced salesperson. It’s unnerving to think that a newly licensed salesperson with no practical real estate experience or valuation education might be estimating property values for a lender.

Without a minimum level of valuation education, standards, and an enforcement mechanism within the Real Estate Commission, it’s perplexing to understand how changing the law benefits the consumer and protects the public trust. Let’s hope that CT Realtors will see the wisdom of necessary training, minimum content standards, and proper enforcement and include these three basic principles of consumer protection in any future attempts to alter the current legislation.

Albert Franke III, MAI, SRA, MRICS, is president of Advisra Consulting, LLC, New Haven, Conn.