Effects of Passing Legislation Permitting Real Estate Agents & Brokers to Complete BPOs in PA

Why is this Bill Bad for Pennsylvania Consumers?

  1. All users of real estate valuation services deserve the assurance that the information they are being provided is accurate and credible, and has been developed by a person who is competent, qualified and independent. The reason why federal legislation specifically prohibits lenders from utilizing BPOs in any mortgage loan transaction is because these assurances cannot be guaranteed. Other users of valuation services, such as servicers, assessing authorities, attorneys, asset managers, homeowners, etc. who are making real estate related decisions, deserve the same protections and assurance as lenders: that the valuation services provided are accurate and reliable.
  2. Enactment of a BPO bill would negatively impact consumers and neighborhoods struggling with foreclosures, short sales, and other distressed properties. The use of BPOs in short sales has been cited by federal law enforcement agencies as perpetuating short sale fraud through “property flopping” – where an inadequately informed lender unwittingly agrees to a short sale based upon an intentionally low BPO, and the property is sold to a third-party who then turns around and sells the property for its higher, true market value. This manipulation of short sale prices in BPOs can depress neighborhood property values and adversely impact consumers. Further, fraudulent and inaccurate BPOs have been cited as a contributing factor in the 2008 failure of a large, national bank. The Inspector General of the Troubled Asset Relief Program (TARP) has also cited the allowance of BPOs in short sales as a significant and troubling design flaw in federal foreclosure prevention programs. Recently, Fannie Mae recognized the shortcomings of BPOs and now requires its servicers to obtain appraisals as part of short sale reviews.
  3. Real estate brokers, associate brokers and salespeople are, as agents, advocates for the interests of the parties they represent. There was nothing in last session’s proposed BPO legislation that would prevent a licensed broker or salesperson from performing a CMA/BPO in such a way as to result in an outcome that is favorable to their client’s interests. An attorney representing a client in a divorce case could hire a broker and engage them to provide a pre-determined outcome, for example. By contrast, real estate appraisers are required to certify that their services have been provided independently, impartially, and without advocacy, regardless of who engages them to do the assignment.
  4. To the untrained eye, a CMA or BPO looks very much like a real estate appraisal. In some cases, consumers, attorneys or others not dealing with valuation services on a regular basis may be unaware of the difference between a CMA/BPO and an appraisal. They will engage a broker or salesperson for a valuation product and will make real estate related decisions based upon that information. However, a CMA/BPO contains an estimate of the selling price of a parcel of real estate, and not a value – two very different concepts. For instance, a BPO/CMA provided to an attorney could be given to the opposing party or opposing counsel who assumes that the information that it contains is an accurate and reliable real estate value. Or, an executor making a decision about selling a house to settle an estate could be provided with a BPO/CMA that does not reflect the market value of their property, or is not provided by a disinterested third party.
  5. Real estate valuation requires training and education: SB 869, the failed legislation introduced in the 2013-14 legislative session, provided no requirements for either. A “newly minted” salesperson in PA needs only to complete 60 hours of real estate education and an on line examination before he or she could begin offering CMA/BPO services for unsuspecting clients on multi-million dollar strip malls, shopping centers, and office buildings. On the other hand, under current law, Pennsylvania mandates that real estate valuation professionals take hundreds of hours of education, accumulate thousands of hours of experience, and then pass an extremely rigorous comprehensive examination, in order to prove they have the skill sets needed to do valuation work. Click here to see the striking differences in educational and experience requirements for state certified appraisers and licensed salespersons and brokers in Pennsylvania.
  6. The BPO legislation did not contain provisions for CMAs or BPOs to be done according to any standards or guidelines. Professional real estate valuers must follow the Uniform Standards of Professional Appraisal Practice (USPAP). As introduced, SB 869 contained no similar guidelines that would dictate how BPOs and CMAs are performed. While standards and guidelines have been developed by national real estate organizations, this bill as written did not require that brokers and agents follow them, or that similar standards be adopted by the Real Estate Commission for use in the Commonwealth.
  7. SB 869 would have allowed real estate sales professionals to provide CMAs and BPOs for both residential and commercial properties. Offering to provide a BPO or CMA to an attorney involved in litigating an environmental loss at a multi-million dollar shopping center, or on a property defect case affecting a complex residential property, involves an entirely different set of parameters and analyses than does providing a consumer with a proposed listing or offering price for a typical house in a neighborhood of similar houses. There was nothing in this legislation to prevent salespeople whose only experience was selling residential real estate from performing a BPO/CMA on a downtown skyscraper for an asset manager.
  8. The Pennsylvania Real Estate Commission recently noted that it has several open cases pending against brokers and salespersons who improperly performed CMAs and BPOs for unauthorized purposes. Enactment of this bill would have effectively covered up past and current illegal activity, and would have changed the law to fit the violation. In addition, the Board of Certified Real Estate Appraisers has several open complaints for the unlicensed practice of appraisal against individuals who performed CMAs outside of the real estate brokerage context.
  9. SB 869 as written would have permitted BPOs to be performed for tax appeals. The Assessors’ Association of Pennsylvania came out strongly against this and it was reported that PAR agreed to remove this intended use of BPOs, from the proposed legislation. To our knowledge, the legislation was never altered to exclude tax appeals.
  10. Passage of SB 869 would have created an uneven playing field for professional real estate appraisers. While real estate appraisers provide readily available and cost competitive services for evaluations, portfolio monitoring, asset management, etc. for financial institutions today, this legislation would have placed them at a competitive disadvantage in the marketplace without corresponding changes to the Real Estate Appraiser’s Certification Act.