Licensed California brokers provide an essential resource for their clients. As licensed professionals whose day-to-day work requires a multifaceted understanding of a property’s potential value, brokers occupy a unique position to provide specific pricing guidance to their clients. This guidance includes, perhaps most importantly, input as to a possible listing or offer price, based upon the broker’s assessment of the property’s worth.
A recent article in a trade magazine suggested that a broker providing such an opinion may violate the rule requiring an appraiser’s license to render an opinion as to value. In response, this article addresses the legal parameters of providing broker opinions of value in California, and concludes that in almost all circumstances, brokers can continue to do what they have always done—use their expertise to advise clients as to property value.
Is a Broker Price Opinion of Value an “Appraisal” Under California Law?
What Is a Broker Price Opinion of Value?
A broker’s price opinion of value and an appraisal each provide a way to assess the estimated market value of a property.
A broker’s price opinion of value, in the context of this article, refers to a licensed California broker’s evaluation of a property’s worth. The broker provides this evaluation to suggest a selling or listing price, potential offer price, or general assessment of a California property’s value as it pertains to a possible purchase, sale, or lease.(1)
By contrast, an appraisal is a formal report prepared by a licensed California appraiser pursuant to established, often data-driven metrics, for determining value. Only a licensed appraiser can provide an appraisal.
Broker’s price opinions initially gained prevalence in foreclosure sales. Banks, in particular, used these evaluations to inexpensively and efficiently evaluate the approximate fair market value of a property, instead of investing in a detailed, costly, and time-consuming appraisal. Over time, the real estate community utilized broker price opinions in other contexts, outside of the foreclosure market.
Now, broker price opinions are commonly used in many arenas—for example, property owners seeking to determine a fair market rental price for a lease arrangement often rely on broker opinions of value to determine a reasonable rental rate. Owners or prospective purchasers may rely on a broker’s opinion of value to determine a suggested listing or purchase price. As an added benefit, broker opinions of value typically cost less than a formal appraisal (perhaps explaining the increased usage of these opinions in modern California real estate transactions).
California Law Differentiates Broker Price Opinions of Value From Appraisals In Certain Circumstances
The Bureau of Real Estate regulates licensed California brokers and can discipline its members for professional violations.(2) In addition, California has enacted a comprehensive statutory scheme to ensure brokerage professionals comply with applicable laws and regulations.(3) Licensed California appraisers, who render opinions of value pursuant to stringent professional standards, are subject to their own statutory regulation.(4)
In California, broker opinions of value are generally not considered “appraisals.”(5) Section 11302(b) of California’s Business and Professions Code defines the term “appraisal” to explicitly exempt opinions of value for real property made by licensed real estate brokers in connection with their brokerage activities. This section reads, in relevant part,
“‘Appraisal’ means the act or process of developing an opinion of value for real property. The term ‘appraisal’ does not include an opinion given by a real estate licensee or engineer or land surveyor in the ordinary course of his or her business in connection with a function for which a license is required…and the opinion shall not be referred to as an appraisal.”(6)
Therefore, licensed real estate brokers may provide opinions of value in connection with brokerage activities. These opinions would logically encompass suggestion of appropriate pricing for the listing, purchase, or lease of a property (i.e., a fundamental activity performed by brokers). Thus, these opinions are not “appraisals.” (However, a licensed California broker who describes the valuation as an “appraisal” in this context, where he or she does not have an appraiser’s license, may violate this provision).
Federally Related Real Estate Appraisal Activities Require the Involvement of a Licensed Appraiser
A broker’s ability to provide opinions of value in California is not unlimited. Activities that involve “federally related real estate appraisal activity” require the services of a licensed appraiser.(7) “Federally related real estate appraisal activity” refers to real property appraisals occurring in the context of “a federally related transaction.”(8) A “federally related transaction” involves those transactions engaged in, contracted for, or regulated by certain federal financial institutions regulatory agencies.(9) These agencies include the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Federal Home Loan Bank System, and the National Credit Union Administration.(10)
Federally related transactions encompass, for example, appraisals sought in the context of acquiring a federally-backed loan, or to refinance an existing property loan.(11) Thus, in a federally related transaction, only a licensed appraiser may render an appraisal, thereby providing a limitation on a California broker’s ability to provide broker’s price opinions.
Licensed Brokers May Legally Provide Opinions of Value in Most Circumstances
Licensed California brokers, whose ability to discern complex market factors in order to assist clients in understanding the general worth of California properties, provide immense value to clients. If the opinion is not the basis for a federally-backed loan or refinancing effort, or presented as an appraisal, California brokers may advise clients as to property values.
–Article written by Attorneys Lee Dresie and Lauren Fishelman of Greenberg Glusker
(1) See, e.g., Assilzadeh v. Cal. Fed. Bank, FSB (2000) 82 Cal. App. 4th 399, 411-12, classifying statements contained in a “Broker’s Price Opinion” as an agent’s opinions relating to value of a property; see also 12 U.S.C. § 3355(b), defining a “broker price opinion” as, an estimate prepared by a real estate broker, agent, or sales person that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property’s condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model…
(2) See generally, Cal. Bus. & Prof. Code § 10050.
(3) Id. at §§ 10000 et seq.
(4) Id. at §§ 11300 et seq.
(5) Id. at § 11302(b).
(6) Id. (emphasis added).
(7) Id. at § 11320.
(8) Id. at § 11302(r).
(9) Id. at § 11302(s).
(10) Id. at § 11302(p).
(11) 2 Members of the Firm of Miller Starr Regalia, California Real Estate § 4:85 (4th ed., 2017); see also Dennis L. Greenwald et al., California Practice Guide: Real Property Transactions Ch. 6-L (2017).