Real Estate Appraisers - Don’t Get Sued

Most claims against real estate appraisers come from unhappy borrowers. The bulk of their complaints are mostly due to the economic issues of the last few years. This article will cover some of the main issues and what you can do to protect yourself.

Real estate appraisers are dealing with more lawsuits as the number of homeowners go through financial difficulties, including losing their homes. It is the homeowner that is looking for relief from their issues and are looking for monetary gain from the resulting economic crisis.

The most common reasons an appraiser is sued today:

Overvaluation of the property
This argument is normally used by those that purchased or refinanced their properties at the peak of the market. With the increase of home defaults, they blame the appraiser for overvaluing the property claiming they borrowed or paid too much for the property.

Undervaluation of the property
The typical argument for this scenario is that the borrower wants to refinance their home and is unable to do so because of the drop in market values. They may have purchased the home at peak prices before the bubble broke and are now unable to refinance.

Square footage
This argument is common and alleges that the square footage reported is incorrect and therefore the homeowner is eligible for compensation. The borrower states that they never would have purchased the home if they knew what the actual square footage was.

Sewer/Septic disclosure
Usually this involves the appraiser not checking the box on the report stating that the property is on septic instead of sewer, which is a common error. Homeowners often ignore routine maintenance of the septic system until considerable damage is done and then seek damages from the appraiser for non-disclosure.

Structural conditions
Although not falling under the scope of the appraisal, many appraisers are sued for conditions such as electrical/plumbing problems and roof conditions.

Also:
Incorrect flood zone information
Easement or property line issues
Undisclosed nuisance issues


Protecting Yourself from a Lawsuit

In today's market there is no way to guarantee that you won't get sued, but you can take some actions to help prevent it from happening.

1. Good Appraisal Work - take the time to be careful and exact in your work. It is sad to see appraisers have to go to court because they forgot to check a box on the report. Also make sure that the wording used on the report is specific to the property, not generic wording that is used for every report. Although this takes more time, it is worth the effort.

2. Add a Disclaimer in the report - a basic addendum to the report that states that the appraisal report is intended for the lender and not the borrower is becoming standard on many appraisal reports.

3. Add an information sheet attached to the back of the appraisal - Just as you would attach your license to the appraisal, do the same with an "information for the borrower" page. This page would tell the borrower, again, that the appraisal was intended for use only by the lender. If you are doing work for an appraisal management company, they may remove this page when they present the report to the borrower, but you will still have a copy of the transmission that shows you sent it. While this will not remove all liability, it does help.



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