For a loan exempt from the appraisal requirement, a bank proposes to use a broker price opinion prepared by an experienced local broker as its evaluation. Under the Interagency Guidelines, may the bank do so?
Correct Answer
A) No; a broker price opinion gives a sales or list price, not market value
The guidelines state that a valuation method providing a sales or list price, such as a broker price opinion, cannot be used as an evaluation because, among other things, it does not provide market value. The broker's experience does not change the nature of the product. Evaluations need not be prepared by appraisers, so option D gives the wrong reason, and option C draws the wrong conclusion from a true premise.
Why This Is the Correct Answer
Option A is correct because the guidelines state that a broker price opinion, which provides a sales or list price, cannot be used as an evaluation because it does not provide a property's market value. The defect lies in the product itself. Information from such sources may still be useful in developing an evaluation or appraisal.
Why the Other Options Are Wrong
Option B: Yes, if the broker has suitable local market knowledge and experience
Option B makes the broker price opinion acceptable if the broker has suitable local knowledge and experience. Preparer qualifications matter for evaluations, but they do not turn a sales or list price into a market value estimate.
Option C: Yes, because persons who perform evaluations need not be appraisers
Option C reasons that persons who perform evaluations need not be appraisers. That premise is true, but the problem is the type of valuation produced, not who produced it, so the broker price opinion still cannot serve as the evaluation.
Option D: No, because an evaluation must be signed by a licensed appraiser
Option D says an evaluation must be signed by a licensed appraiser. The guidelines allow qualified persons such as real estate lending professionals to perform evaluations, so this is not the correct reason.
Price is not value
A broker price opinion suggests a sales or list price; an evaluation must estimate market value with support.
How to use: Use this phrase when a question offers a broker product or market summary as a substitute for an evaluation.
Exam Tip
Separate who prepared a valuation from what kind of value it provides; either can disqualify a product as an evaluation.
Common Mistakes to Avoid
- -Accepting a broker price opinion as an evaluation because the broker is experienced
- -Believing only appraisers may prepare evaluations
Concept Deep Dive
Analysis
The question tests what makes a valuation acceptable as an evaluation: it must provide a property's market value with sufficient support. A broker price opinion fails because it provides a sales or list price. The trap is to focus on the preparer's qualifications instead of the type of value the product delivers.
Background Knowledge
An evaluation must provide a reliable estimate of market value as of a stated effective date with enough information and analysis to support it. Products such as broker price opinions and competitive market analyses can inform an evaluation but are not acceptable as evaluations by themselves.
Real-World Application
A loan officer suggests using a listing agent's price opinion to save time on a small home-equity loan. The bank's collateral desk declines, uses the opinion as background, and orders an evaluation that estimates market value.
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