News & EventsHawaii BPO Act
Over the last couple of years the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementation have dominated financial news outlets throughout the country. Within the past couple of years, there has been a small movement to address another aspect of financial system reform: challenges to active legislation that restrict the preparation and use of a Broker Price Opinion ["BPO"].
There has been a significant debate over the last few years on what exactly a BPO is and its use. According to the National Association of BPO Professionals ["NABPOP"], a BPO is a method that a Real Estate Broker (or an agent acting on behalf of their employing Broker) uses to estimate the probable selling price of a Real Estate property/house. The estimate of price is submitted in a BPO report (typically 1-3 pages) that include local and regional Real Estate market information, neighborhood analysis and comparable ("comps") properties that compare to the subject house that is being valued. This method of estimating a value has similarities to a Comparative Market Analysis ["CMA"] and a residential Real Estate appraisal.
Some states have interpreted language in state and federal statutes that may suggest preparing a BPO for compensation could be construed as an appraisal; this ongoing debate has appeared in courts throughout the country.
A few years ago, FAS' ["Financial Asset Services, Inc."] Valuations department experienced difficulties assigning BPO orders in the State of Hawaii. Back then, it was interpreted that if a real estate licensee charged a fee for a BPO other than the commission involved in the normal sale of a property, then that licensee would be in violation of Real Estate Appraisers [Section 16-114-74(2)].
Katy Severson, the firms Valuations Operations Manager, had concerns about the cost effectiveness of an appraisal versus a BPO for the firm’s clients and the interpretation of the Hawaii statute. At her request, the firms Director of Risk Management, Jimmy Alvarez, completed some research on the matter; his finding was that it could be argued that a BPO is separate and distinct from an appraisal and has a variety of uses other than lending. The conclusion that portions of the Hawaii statute were limited in scope and needed clarification were presented to the state of Hawaii, Department of Commerce and Consumer Affairs (Real Estate Appraiser Program) "HDCC".
After several conversations with the HDCC, FAS filed a Petition for Declaratory Relief to address the BPO statute and the language involved. Although the petition was not awarded, a foundation to address this matter was established. With the assistance of NABPOP, FAS was able to provide vital research information including disclaimer language to organizations such as the Hawaii Association of Realtors. This information assisted them in supporting legislation that would be introduced the following year.
A number of organizations have been involved in addressing the Hawaii BPO issue over the last few years. As a result of this involvement, House Bill 320 was established and signed by Governor Abercrombie on July 11, 2011. The Bill was supported by the Hawaii Association of Realtors, Hawaii Bankers Association and additional support was offered by the Hawaii Chapter of the Appraisal Institute. HB 320 amends Hawaii Revised Statutes by adding a new section [Section 1, § 467] which allows real estate professionals to prepare Broker Price Opinions for use in real estate transactions where an appraisal is not required by law or otherwise. Under HB 320, a real estate professional must perform certain functions and make a disclaimer that the BPO is not an appraisal.
Collectively, real estate boards, banking institutions as well as organizations such as NABPOP and FAS have been working together to amend BPO statutes. These changes have attempted to create a streamlined, make-sense approach when preparing Broker Price Opinions. Other states that have had changes in their BPO laws are Arkansas, Nevada, Utah and recently Mississippi.
FAS applauds the efforts of all those involved in Hawaii .
FAS is a national Asset and Appraisal Management Company with a 30-year history of providing superior property disposition and valuation services for mortgage companies and financial institutions. To learn more about Financial Asset Services or how they can assist you with your needs, please contact the Sales and Marketing team at (949) 862-1425 or via email at marketing@fasinc.com.
