We do not believe a broker price opinion can form the basis for establishing a property’s “market value.” In other words, even if a broker price opinion purports to state a property’s market value, that opinion may not be relied upon in lieu of an appraisal or evaluation when financing a real estate transaction. 

Federal law establishes when a real estate transaction requires an appraisal or evaluation, as well as the standards for appraisals and evaluations. One federal requirement is that both appraisals and evaluations contain an opinion as to a property’s “market value,” which the federal appraisal regulations define as “the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale . . . .”

The federal law does not expressly prohibit a broker price opinion from including an estimate of a property’s market value. However, under the Illinois Real Estate License Act of 2000, a broker price opinion must contain a statement that it is “not an appraisal of the market value of the real estate, and was prepared by a licensed real estate broker or managing broker, not by a State certified real estate appraiser.” That act does not define an “appraisal,” but under the Illinois Real Estate Appraiser Licensing Act of 2002, the term “appraisal” is defined as “an opinion of value.” In other words, there is a strong argument to be made that under Illinois law, a broker price opinion may not include an opinion of a property's market value.

Even if a broker price opinion were to contain a property’s market value, Illinois law prohibits a broker price opinion from being used as “the primary basis to determine the market value of an interest in real estate for the purpose of a mortgage loan origination by a financial institution secured by such real estate.” In addition, federal law expressly states that “broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by such piece of property.” The federal Interagency Appraisal and Evaluation Guidelines further state that a broker price opinion “is not by itself an appraisal or evaluation . . . .”  

Consequently, we believe a broker price opinion that purports to contain an opinion of a property's market value may not serve as either an appraisal or an evaluation when financing the property's transaction.

For resources related to our guidance, please see:

• Interagency Appraisal and Evaluation Guidelines (“Each appraisal must contain an estimate of market value, as defined by the Agencies' appraisal regulations . . . .”) 

• FDIC Appraisal Regulations, 12 CFR 323.2(a) (“Appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information.”)

• FDIC Appraisal Regulations, 12 CFR 323.2(g) (“Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.”)

• Illinois Real Estate License Act of 2000, 225 ILCS 454/10-45(b)(7) (“A broker price opinion or comparative market analysis shall be in writing either on paper or electronically and shall include the following provisions . . . a statement in substantially the following form: ‘This is a broker price opinion/comparative market analysis, not an appraisal of the market value of the real estate, and was prepared by a licensed real estate broker or managing broker, not by a State certified real estate appraiser.’”)

• Illinois Real Estate Appraiser Licensing Act of 2002, 225 ILCS 458/1-10 (“‘Appraisal’ means (noun) the act or process of developing an opinion of value; an opinion of value . . . .”)

• Illinois Real Estate License Act of 2000, 225 ILCS 454/10-45 (“A broker price opinion . . . may be prepared or provided by a real estate broker or managing broker for any of the following . . . an existing or potential lienholder or other third party for any purpose other than as the primary basis to determine the market value of an interest in real estate for the purpose of a mortgage loan origination by a financial institution secured by such real estate.”)

• Dodd-Frank Act, 12 USC 3355(a) (“In conjunction with the purchase of a consumer’s principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by such piece of property.”)

• Interagency Appraisal and Evaluation Guidelines (“Broker Price Opinion (BPO) . . . [a] BPO is not by itself an appraisal or evaluation, but could be used for monitoring the collateral value of an existing loan, when deemed appropriate. Further, the Dodd-Frank Act provides “{i}n conjunction with the purchase of a consumer's principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of loan origination of a residential mortgage loan secured by such piece of property.”)