Table of Contents
CMA’s and BPO’s
Statutory Provisions Affecting CMAs and BPOs
ORS 696.010(7) defines CMA. ORS 696.294 defines BPO. Click HERE for an explanation of the statute.
return to top Administrative Rules Affecting CMAs and BPOs
OAR 863-015-0190 contains the express legal authorization for a real estate licensee to provide competitive market analysis and letter of opinion in the normal course of their business. Click HERE for an explanation of the rule.
return to top Using CMAs and BPOs
For many years, “competitive market analysis” (CMA) and “letter of opinion” or “broker price opinion” (BPO) were terms of art used to describe the analysis and opinion used by real estate brokers when establishing a listing price. Competitive market analysis was intended to convey the idea that what was being analyzed was the housing market to determine a competitive listing price. Broker price opinion was used to distinguish the work of brokers from that of appraisers.
Eventually, “competitive market analysis” and “letter of opinion” (BPO) came to be defined in statute. According to ORS 696.010(7), “‘Competitive market analysis’ means a method or process used by a real estate licensee in pursuing a listing agreement or in formulating an offer to acquire real estate in a transaction for the sale, lease, lease-option or exchange of real estate.” The object of a CMA must be “a recommended listing, selling or purchase price or a lease or rental consideration.” A “letter of opinion” is “a document that expresses a real estate licensee’s conclusion regarding a recommended listing, selling or purchase price or a rental or lease consideration of certain real estate and those results from the licensee’s competitive market analysis.”
Administrative rules have been used to flesh out these statutory definitions. All is thought necessary to distinguish a broker’s opinion on “price” from an appraiser’s opinion of “value.” As the real estate lending market heated up in the 1990’s, banks were able to successfully lobby Congress to loosen appraisal rules for residential lending. The federal rule change caused something of a legal dust-up between lenders and appraisers that untimely lead to an exception being carved out of the (brokers do price opinions and appraisers do value opinion) paradigm. This compromise and the traditional rules that distinguish BPO’s from appraisals are now found in a single administrative rule.
OAR 863-015-0190 contains the express legal authorization for a real estate licensee to provide competitive market analysis and letter of opinion in the normal course of their business. The authority, however, is expressly limited to the “pursuit of a listing, to assist a potential buyer in formulating an offer or to provide a broker's price opinion, weather or not done for a fee” This limitation applies whether the opinion is done for a fee or not.
The rule specifically declares that the term “value” when used in a CMA or letter of opinion is not intended to mean or imply “value” as used in appraisals. To make certain there is no confusion, the rule requires that a CMA or BPO be in writing and contain the following: “(a) A statement of purpose and intent; (b) A brief description of the property;
(c) The basis of reasoning used to reach the conclusion of value including the applicable market data and/or capitalization computation; (d) Any limiting conditions; (e) A disclosure of any existing or contemplated interest of the licensee in the subject property; (f) The signature of the licensee issuing the competitive market analysis or letter of opinion and the date of its issuance; (g) A disclaimer that, unless the real estate licensee is also licensed by the Appraiser Certification and Licensure Board, the report is not intended to meet the requirements set out in the Uniform Standards of Appraisal Practice; and (h) A disclaimer that the competitive market analysis or letter of opinion is not intended as an appraisal and that if an appraisal is desired, the services of a competent professional licensed appraiser should be obtained.” Click HERE for a sample letter of opinion form.
CMAs and BPOs have become an ordinary part of professional real estate activity. If the dictates of OAR 863-015-0190 are followed, there are few problems. When the requirements of the rule are not followed, however, the result can be violations of real estate license law. It is, for instance, a violation of ORS 696.301(8) to accept employment or compensation “for the preparation of a competitive market analysis or letter of opinion that is contingent upon reporting a predetermined value or for real estate in which the licensee had an undisclosed interest.” But, far and away the most common violations result from agents doing CMAs and BPOs for purposes other than in “pursuit of a listing, to assist a potential purchaser in formulating an offer or to provide a broker's price opinion in pursuit of a listing, to assist a potential purchaser in formulating an offer or to provide a broker's price opinion.”
A common way in which the limitation placed on the authority to do CMAs and BPOs is to do them for a home owner challenging a property tax assessment or a lawyer in a divorce case or other real property action. It is not that CMAs and BPOs cannot be used in such context; rather it is that often the agents hired forget they cannot offer opinions of value and must use their CMA and letter of opinion authority only in pursuit of a listing or to aid a buyer in making an offer. A seller who received a letter of opinion in contemplation of selling the property might later use the letter to contest a property tax assessment, but the agent could not provide the letter for the purpose of contesting the property tax assessment. It is for this reason, that every letter of opinion should be accompanied by a cover letter that explains its purpose. Click HERE for a sample letter of opinion cover letter.
return to top Lending and Default Collateral Analysis
Recently, narrow exceptions have been carved out of the rule that CMAs and Letters of Opinion can only be done for the purpose of pursuing a listing or to aid a buyer. The exceptions, found in subsection (4) of OAR 863-015-0190, deal with what are called “lending collateral analysis" or "default collateral analysis." "Lending collateral analysis" means a real property market analysis where the purpose of the analysis is for use by a lending institution in support of a loan application. "Default collateral analysis" means a real property market analysis where the purpose of the analysis is for use by a lending institution in considering its actions with respect to a loan in default.
Lending collateral analysis and default collateral analysis are creatures of Federal law. They were originally exceptions to the appraisal requirements for Federally-backed real estate mortgages. Such analyses are not appraisals and under state or Federal law can be used only for the internal purposes of a financial institution when the loan is less than $250,000. OAR 863-015-0190(4) allows Oregon real estate licensees to do a lending collateral analysis or a default collateral analysis provided the analysis is for the internal purposes of a financial institution when the loan is less than $250,000.
Lending collateral analysis and default collateral analysis are often confused with CMAs and BPOs. They are, however, not the same thing at all. Basically, the Real Estate Agency has simply incorporated state and Federal appraisal law exceptions into real estate license law and grafted them onto the existing CMA/BPO rules. The appraisal exceptions, however, apply to anyone employed by a financial instruction to do such analysis for internal use.
Having a real estate license is irrelevant to the appraisal exceptions that allow financial institutions to use lending collateral analysis and default collateral analysis instead of appraisals. This explains why, unlike CMAs and BPOs, there are no real estate license law provisions that dictate the contents of such analysis when done by a real estate licensee. The administrative rule simply allows licensees to do what anyone employed by a financial institution can do. It is for that reason that banks often deal individually with agents and do not involve the agent’s broker or company. Agents involved in providing such analysis should be aware, however, that they must disclose their involvement if they later list or represent a buyer in the purchase of the property.