How much is your house worth? Appraisers will tell you. And so will real estate agents.
That's why there's a bill at the Legislature that seeks to clarify the issue. Though agents have long conducted comparative market analyses for buyers and sellers engaged in run-of-the-mill transactions, they are increasingly being called on to do what are known as "broker price opinions," primarily for out-of-state lenders trying to unload distressed properties.
Appraisers aren't happy about it. Wendy Walker, a certified general appraiser and a past president with the North Star Chapter of the Appraisal Institute, says that broker price opinions (BPOs) are not in the best interest of the consumer because agents don't have the training and skills of an appraiser, and that agents who conduct them have an inherent conflict of interest because they often also represent buyers.
"I view it as a consumer protection issue," she said.
Chris Galler, chief operating officer for the Minnesota Association of Realtors, says that according to state law, agents already have the authority to conduct such services and that the bill simply amends current law.
"We're just trying to clarify this so that there isn't any question or conflict," he said.
At stake are the multiple requests that lenders make for valuations on every foreclosure that comes to the market. In Minnesota last year there were an estimated 120,000 broker price opinions conducted for lender-mediated transactions, not including those done for routine home sales.
State law already says that BPOs cannot be conducted to secure a mortgage, and the Dodd-Frank consumer protection rules that will be implemented in April say the same thing.
The bill is an amendment to current statutes governing the work of real estate agents and appraisers that defines a broker price opinion as one that "details the probable selling price of a particular parcel of real property" and spells out the duties of the licensee. It also makes it clear that a BPO is not subject to the same Uniform Standards of Professional Appraisal Practice that apply to appraisers.
The Minnesota Department of Commerce provides licensing and enforcement for both real estate agents and appraisers. Spokeswoman Nicole Garrison-Sprenger said that the current statute is "very" open to interpretation, but that this bill would not affect licensing rules for the department. "This bill would provide some clarity," she said.
Fees that are generated by BPOs are small potatoes compared with real estate commissions. They typically cost $50 to $75 depending on several factors, including how far the agent has to drive, while an appraisal can take many hours and costs hundreds.
But at a time when commissions are few and far between, the BPO business is one of few segments of the industry that's showing any signs of growth. Many agents see BPOs as a way to generate a little extra cash and to build a relationship with a lender that might eventually hire them to list houses.
A single foreclosure listing can require as many as five or six individual BPOs at various stages of the process, in addition to an official appraisal that's required for financing.
Greg McBride, chief economist for Bankrate.com, says the BPO issue has emerged in other states at a time when the appraisal industry is already subject to considerable scrutiny and sweeping legislation.
In addition to state licensing rules and federal mortgage regulations, appraisers must comply many regulations, including the Home Valuation Code of Conduct, to prevent the kinds of problems that some say helped cause the crash. He said that such BPOs are particularly common in places like Florida, where foreclosure activity dominates the market.
The amendment states that BPOs cannot be used as the basis for determining a property's value "for the purpose of a loan origination." But Julie Bjorklund, a residential appraiser with BCL Appraisals in Minneapolis, said that there are many other circumstances when financial considerations could be affected by a BPO.
She's also concerned that consumers will be tempted to rely on a BPO rather than a full-fledged appraisal because it's cheaper. In addition to the thousands of hours of training she needed to do get certified as an appraiser, she's also required by law to have 30 hours of training every two years, another 100 hours of continuing education every five years. For her particular certification, a college degree is required.
Galler doesn't disagree. "Appraisers have a much higher level of accountability," he said. "They study value going forward and backwards, and what we do isn't an appraisal."
Jim Buchta • 612-673-7376