August 24, 2010
Transactions and Regulatory Committee
Legislative Committee
[This material is for discussion purposes only and has not been approved by the Transactions and Regulatory, Legislative or Executive Committees or the Board of Directors]
Issues:
1. Does the existing law allow real estate licensees to perform "BPOs" without an appraisal license?
2. Should C.A.R. sponsor legislation to allow salespersons to perform price opinions for compensation without the supervisory control of the employing broker?
3. Should C.A.R. sponsor legislation to allow salespersons to receive compensation for valuation opinions outside of the employing broker's control of the funds?
Action:
Optional
Options:
1. Do nothing
2. Respond to legislation of others as introduced
3. Sponsor legislation
4. Other
Status/Summary:
Existing California appraisal law excludes from its control any valuation opinions by real estate licensees "in connection with a function for which a license is required." Questions have arisen recently about:
1. Whether a salesperson licensee can perform a "broker" price opinion.
2. Whether the "BPO" must be limited to situations in which the licensee is representing a conventional buyer or seller.
3. Whether compensation for the BPO must flow through the salesperson's employing broker.
4. Whether the salesperson can perform a BPO independent of the employing broker's supervision and control.
Discussion:
"Appraisal" defined. While real estate valuations by licensees are commonly called either a "BPO" (Broker Price Opinion) or a "CMA" (Comparative Market Analysis), neither term appears in the appraisal law exemption. Instead, the statute (Business and Professions Code Sec. 11302) exempts from the definition of "appraisal" an opinion of value:
- by a real estate licensee;
- in connection with a function for which a license is required; and,
- not referred to as an appraisal.
Under this definition,
the opinion of a sales licensee qualifies, and if it fits the rest of the definition, would be exempt from regulation as an appraisal. The breadth of the exemption is not accidental - the language was drafted by C.A.R. as part of the original appraiser licensing legislation.
License Status or Scope of Practice Exemption? Some exemptions provided for licensees are based upon the status of just possessing a license; others are based upon the fact that the activity is something within the scope of the licensed activity (and is thus already regulated by Department of Real Estate). The second sort of exemption for real estate licensees is available not just because the person has a license, but because he or she is a license holder and acting within the scope of activity regulated by that license.
It seems clear from the wording of Business and Professions Code Sec. 11302 that the BPO exemption from appraisal regulation is a scope of practice exemption.
Should C.A.R. attempt to change the statute so as to exempt real estate licensees for valuation opinions that are not connected with a function for which a license is required? What would be the public policy rationale to support such a change?
Control of Compensation
A real estate salesman cannot contract in his own name nor accept compensation from any person other than the broker under whom he is licensed; the entire statutory scheme requires broker actively to conduct his brokerage business and to supervise the activities of his salesmen and precludes the salesmen from taking charge of or conducting a business such as a rental agency which requires a broker's license. Grand v. Griesinger (1958), 160 Cal. App. 2d 397, interpreting B&P Code Sec. 10137.
Business and Professions Code Sec. 10137 states in part that it is illegal for a salesperson to be employed by or accept compensation from anyone other than the salesperson's employing broker. Longstanding C.A.R. policy has supported the requirement for payment through the broker and an obligation to be subject to the supervision of that broker.
If, as discussed above, the ability to perform a BPO under an exemption from the appraisal law depends on the BPO being licensed activity, then the conclusion seems inescapable that the compensation for that licensed activity must be paid through the employing broker.
Should C.A.R. attempt to create a change in this existing law and policy that would allow salespersons to be paid outside of the broker's control? Compensation for individual BPOs is relatively small; is that sufficient justification (especially if the broker approves) for an exception for the general rule?
Independent Practice. It has been suggested that in some states a salesperson may "hang out a shingle" to do business supplying BPOs to lenders and others, outside of the relationship with the employing broker's company. Could that model work in California?
The following logic would suggest not. First, the BPO has to be licensed activity in order to exempt from the appraisal law. Second, the real estate law says licensed activity must be supervised and compensated by the employing broker. Therefore, if the BPO is licensed activity, then both the control of the activity and the compensation must flow through the hands of the broker. Indeed, the rule cannot be waived even with the broker's consent, because supervision and control is the broker's obligation as well.
Should C.A.R. attempt to change the existing supervisorial relationship for BPOs?
What reason would support such a change?
What about other industry participants? C.A.R. staff has met with representatives of Clear Capital, a nationwide valuation company that supplies the services of real estate licensees, has indicated that is not uncomfortable with California's appraisal definition and would prefer to see it adopted in other states. It is also a member of the Real Estate Valuation Advocacy Association (REVAA) and does not anticipate sponsoring any change in California law.
The Appraisal Institute, certifying and representing appraisers nationwide, has voiced concern about real estate licensees (both brokers and salespersons) supplying opinions of value. However, the Institute has not indicated that will sponsor legislation on the subject.
