California Partition Law Blog
In determining the value of property, a property owner can seek out a broker’s opinion of value. A broker’s opinion of value, also caller a broker’s price opinion is an assessment of a property’s value. This assessment is done by a real estate broker, often for free to get the property owner’s business.
Broker’s Opinion of Value
A broker’s price opinion is often considered a personal opinion, not a representation of fact. So, it is a cost-effective way to determine value but cannot be relied on to get a loan. The price opinion covers anything that is an estimate prepared by a real estate broker, agent, or salesperson detailing the probable sales price of a price of property. The price opinion will provide a varying level of detail about the property’s condition, market, neighborhood, or comparable sales. (12 U.S.C. § 3355(b).) A broker’s price opinion will not include an automated valuation model. (12 U.S.C. § 3355(c).) An automated valuation model is a computer program that offers an estimated property value on searched properties commonly used on online real estate marketplaces. Federal statute dictates a broker’s price opinion cannot be used as the primary basis to determine a property’s value for originating a mortgage loan secured on a piece of property. (12 U.S.C. § 3355.) So, while a broker’s price opinion cannot be the basis for a loan, their opinion is still valuable. As such, brokers are held to a higher standard of care.
Broker Duty of Care
Brokers are held to the guidelines set out in the Dodd-Frank Act which acts as a professional standard for Brokers to follow. The act establishes that a broker price opinion may not be used to determine the value of property for originating a mortgage loan on that property. (Dodd-Frank Act §1473(r).) The purpose of the act is preserving appraisal independence. This means ensuring consumers can get helpful appraisals, especially where it is a credit transaction. This helps protect appraisers and consumers from intimidation or bribery. (15 U.S.C. § 1639e.)
A broker owes a duty of care to prospective buyers. As an agent to the buyer or seller the broker must act reasonably prudent and in accordance with the education and experience afforded to them by their license. (Civ. Code § 2079.2) They owe this duty to conduct a competent and diligent visual inspection of the property at issue. A broker is only required to disclose any facts that might affect the value or desirability of the property to their client or if the broker is seeking out a buyer on behalf of the seller (can be acting through a second broker). (Civ. Code § 2079.) This duty applies to leased properties as well. (Civ. Code § 2079.1) In California, a broker can act as a dual agent and sign a contract to represent the buyer and seller to complete the sale and purchase of the property which is why the disclosure requirement applies. (Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 414.)
A broker’s price opinion is an opinion relating to possible future prices. While this is given while the broker is acting as an agent, not all parts of the opinion require disclosure to a buyer. If the statements were nothing more than vague or general speculation about possible value at an unspecified further time that would not require disclosure. (Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 411-412.) Absent any harm or attempt to mislead, a party will not be responsible for not disclosing their broker’s opinion of value.
If a buyer realizes and can show the (seller’s) broker’s opinion was below market value, it only shows the ease with which the information could be acquired. (Kahn v. Lischner (1954) 128 Cal.App.2d 480, 490.) So, where a buyer expressed an opinion on the value of the property that aligned with that of their broker, a court would not find there was fraudulent misrepresentation. (Cook v. Nordstrand (1948) 83 Cal.App.2d 188, 192.)
What are other uses for a broker’s opinion of value?
A broker’s opinion allows a buyer, seller, or both to determine the value of a property. This opinion may be relied on in conducting and completing a sale. A broker’s opinion can be offered as evidence in a court proceeding as well. (Evid. Code § 814) The judge may decide to have the broker’s opinion as valuation evidence or evidence showing the value of the property. (County Sanitation Dist. No. 8 v. Watson Land Co. (1993) 17 Cal.App.4th 1268, 1282.) A broker can qualify as an expert witness and give their opinion of a property’s value on cross examination. (People ex rel. Dept. of Public Works v. Alexander (1963) 212 Cal.App.2d 84, 91.)
What is an example?
If Julie owns a home and is thinking about selling it to Shawn, she will want to ask a broker for their price opinion. The broker would inspect the property and see if any repairs needed to be made for it to sell and compare other sales in the neighborhood to see how much the house could sell for. Depending on the home’s value and of Julie continues to want to sell the home, she could use this same broker in carrying out the sale. If Julie and Shawn were both using the same broker to conduct the sale, the broker would need to disclose any material facts in their opinion of value to both Julie and Shawn. If Julie had a faulty heating system that needed to be replaced soon, Shawn would be entitled to that information.
However, if Julie was seeking to take out a mortgage on the property, she would need to pay for an appraisal to be done on the property in order to get a loan. She could, following the appraisal, get a broker to give their price opinion on the property as a second opinion.
Conclusion
A broker’s price opinion is an easy inexpensive way to get an opinion on the value of a property. A price opinion is an option open to buyers, sellers, and even in court proceedings like partition. The Underwood Law Firm has a team of experienced lawyers who can help resolve your property interest disputes at trial and help you pursue solutions like partition actions. We are here to help.