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“What do you think this property is worth?” All of us who are in the real estate profession have been asked this question hundreds of times.  You try to answer it for a customer or client each time you do a Comparative Market Analysis (CMA) or a Broker Price Opinion (BPO). As a license holder, you are allowed to perform this task in the name of the broker as a distinct service and for a separate fee.  This is a very particular skill you can learn to do competently.  But when you do so, be careful to ensure you stay clearly within your area of expertise – and do not exaggerate the skill you’ve developed. Real estate brokers and sales agents do not offer “opinions of value” – that area of expertise requires an appraiser license in Texas.  So there is no such thing as a “broker opinion of value” (BOV) in Texas!  

Real estate professionals should avoid using the term "value" without an appropriate prior qualifier that makes it very clear to your audience that you are not offering "an opinion of value"; that is the legal definition of an appraisal. 

Now before you get upset about this, realize that clearly establishing your area of expertise is one of the requirements of your professional license.  Your license allows you to perform many skilled tasks associated with real property analysis, marketing, sale and transfer, but it also requires you to perform these tasks competently, that is, with a minimum level of expertise.  And to refrain from engaging in activities – even those permitted by your license – if you have not developed that expertise.  For example, you would never attempt to complete a 1031 Exchange without acquiring the knowledge and skill to do so competently. And your license also does not allow you to trespass into other real estate transaction-related tasks which require separate and distinct licenses. You already know and accept this. 

Competence and Licensing

You may be a great contract negotiator, but you know you cannot write substantive provisions into a client’s contract unless you have a law license. You may be a very skilled closing or escrow counselor, but you cannot perform certain escrow or closing tasks without an escrow agent or law license.  You may be highly accomplished at estimating mortgage qualifications for customers or clients, but you cannot underwrite and originate a loan without a mortgage loan originator license.  Similarly, you may have tremendous skills in estimating the likely sale price of a home, and even more so in the marketing strategy of recommending a listing price based on that analysis, but that is clearly not the same as the detailed process used to establish a “market value” for purposes of collateralizing a mortgage loan.  Establishing a “market value” requires adherence to the Uniform Standards of Professional Appraisal Practice (USPAP). And in Texas – like in most states – performing that task requires an appraiser license.

As you are likely aware, as a license holder you are allowed to create a CMA or a BPO relating to the estimated price of real property as part of the ordinary course of business if the analysis, opinion or conclusion is related to the actual or potential management, acquisition, disposition or encumbrance of an interest in real property. Most importantly, the CMA or BPO cannot be referred to as an appraisal, and you are required to use a disclaimer that specifically informs the user or reader that this is not an appraisal and was not developed following the guidelines in the Uniform Standards of Professional Appraisal Practice (USPAP). See Tx Occup Code Sec. 1101.102(1)(A)(xi) and Title 22 TAC Sec. 535.17.

Precision Offers Protection

While there are certainly instances where the term “value” is used generically in the realty marketplace, as professionals, we are required to be more precise in our language. This is especially true in our advertising which tends to use simple and brief terminology.  We know how to do this – we already do it all time. We differentiate between brokers and sales agents, and between REALTORS and other license holders, even when our clients may not fully comprehend the implications of the distinction.  We explain the difference between a customer and a client, to ensure either party does not misunderstand the scope of professional assistance we can offer. We carefully distinguish between “tax value” and “market price” to ensure our clients are both realistic and fully informed. To serve our clients competently – and to avoid misleading them, it is required that we are also able to clearly explain the difference between “sale price” and “market value”.   

Price vs Value

To start, a sale “price” is the amount of money that the buyer agrees to pay for, and for which the seller agrees to transfer, the property – think of it as the “exchange” price. Based on a widely variable set of determinate and indeterminate factors, this amount may be very close to, or very far from, the “market value” of a property. “Price” is just one element to be taken into consideration when determining “market value”.  Often it can be the most predictive element, but that does not make it equivalent.  

What about the potential for a change in property use?  Or the zoning classification?  What about an easement or some other key entitlement or restriction?  Would any of these variables affect market value?  Of course they would!   Without a detailed analysis performed under recognized methods and techniques, and using current data to consider all three major approaches to value – income potential,  comparable sales and replacement costs, and then reconciling those relevant results, a fair “market value” cannot be reliably determined.  And these skills are precisely what an appraiser is trained to do. 

And this is why the lending community relies almost exclusively on an appraisal report to estimate the “market value” of the collateral property when making a mortgage loan.  A BPO just won’t cut it.  There are many circumstances for which a CMA or a BPO provide the kind of information needed to assist an owner or the owner’s agent in evaluating the options for dealing with a specific property – versus the structured, detailed analysis provided by an appraisal report. But that does not make them equivalent. A BPO or CMA is not a comprehensively sufficient analysis to establish “market value”, though it may be done competently enough to support a likely sales price prediction or a listing price marketing strategy.   

The Take-Away

So, unless you hold a current appraiser license, the next time someone asks you “What do you think that property is worth?”, choose your words carefully when you answer.  “In today’s market, I think it would sell for $XX” is always a more appropriate response for a real estate professional – broker or sales agent. The most professional approach is to simply avoid using the term “value” without an appropriate prior qualifier that makes a clear distinction that you are not offering “an opinion of value” - which is the legal definition of an “appraisal” in Texas, and requires an appraiser license to do competently and legally.