Real estate agents and appraisers are facing off in the state capital as brokers push forward a law that would allow them to compete directly with appraisers in certain circumstances when it comes to evaluating homes.

The showdown is centered around “broker price opinions” (BPOs), short reports submitted by brokers that come up with a price for a home based on their experience and analysis of current market conditions. Though in many ways serving the same end as a formal appraisal, BPOs often require far less time and effort than an appraisal and – most importantly from a lender’s perspective – often cost far less than the hundreds of dollars appraisers charge. In many states, lenders prefer to use BPOs in lieu of formal appraisals, particularly when keeping costs down is essential, as in short or REO sales.

In Connecticut, however, current state law prevents real estate brokers from selling their services directly – while they can provide a BPO to a homeowner or to a prospective buyer or landlord and charge a fee for it, if they are then hired to sell the property they’re supposed to deduct any fee for the BPO from their commission. And they can’t offer their services to lenders directly.

That’s unfair, agents say. “There are lenders and attorneys who would pay us, and routinely pay real estate licensees in other states for the exact same services, but we are unable to accept this fee. We are asking your consideration for single mothers in Connecticut like me who are very hard-working and professional and should be able to be paid for our professional services. This is personal for me,” testified Donna Karnes, a Norwalk Realtor who spoke on behalf of the Connecticut Realtors Association.

Appraisers counter that allowing brokers and agents to freely offer price evaluations on properties, so long as they don’t call themselves appraisers, will cause an increase in inaccurate and potentially inflated appraisals, ultimately harming consumers. Properly valuing a home or other property takes time and skill, appraiser say, and while certified appraisers have years of training under their belts and are governed by a rigorous, if not Byzantine, set of guidelines known as the Uniform Standards of Professional Appraisal Practice (USPAP), brokers have no such training or background to draw upon when making their evaluations.  And, appraisers allege, brokers may be subject to conflicts of interest when it comes to evaluating properties, since often issuing a BPO may lead to future commissions.

“We feel like the reason we have licensing laws in the state of Connecticut …  the whole idea is to protect the consumer, to separate the broker’s process from the appraisal process, which is independent,” John Galvin, principal of Andrews & Galvin Appraisal Services LLC in Farmington and president of CT Chapter of the Appraisal Institute, told The Commercial Record.

‘A Step Backwards’

The push for the BPO bill couldn’t have come at a worse time for appraisers, many of whom have been buffeted by waves of regulatory and industry changes in the wake of the housing crisis. Inflated appraisals were of considerable impact in helping to spur the housing bubble of the mid-2000s, but the years since have seen lenders and regulators applying increasing scrutiny to appraisers’ reports, requiring them to add more comparison properties and respond to rounds of reviewer’s questions. Appraiser fees have also come under pressure, with many lenders preferring to work through third-party appraisal management companies in order to help demonstrate to regulators that their loan officers aren’t exerting undue influence on appraiser’s reports.

Earlier this year, a fresh round of upheaval has broken out in the appraisal industry with the decision by Fannie Mae to start sharing information with lenders generated by a screening tool called “Collateral Underwriter.” The program has been used internally at the government-sponsored entity for years to automatically screen appraisal reports, assigning them a “risk score” based on how far the price named in the appraisal for a designated property differs from Fannie’s prediction.

Fannie has given lenders little guidance on what to do if a loan their underwriting comes attached to a “risky” appraisal. It’s often the case that a particular home might be worth considerably more or less than others in its neighborhood, depending on particular amenities (or the lack thereof) it possesses, and Fannie has said that having a higher risk score doesn’t mean that it won’t purchase the loan. But, ever fearful of buybacks, lenders are now beginning to apply increased scrutiny to such reports – meaning even more time and effort on the appraiser’s part to address their concerns.

With all these efforts underway to make the appraisal process more arduous and require ever more professionalism from appraisers, “we feel this bill is taking a step backward,” Galvin said, by authorizing a cheaper, hastier form of price evaluation.

Email: csullivan@thewarrengroup.com