Liabilities in Real Estate Appraisal

December 6, 2019

During the process of selling a home, a real estate appraiser comes in to provide objective and unbiased opinions about the property in question. This impartial view gives all involved an honest look at statistics and opinions of value for the home.

Sometimes, however, appraisers can find themselves as the focus of lawsuits pertaining to unfair bias or practices that have resulted in a value that the seller doesn’t find honest or upfront.

Inaccurate appraisal reports have been the center of past lawsuits, putting real estate professionals in the middle of legal problems. While it’s difficult to win a judgment against an appraiser, this doesn’t mean these professionals should feel exempt from any liabilities. Litigation alone can be time-consuming and costly, not to mention harmful to their reputation.

Lawsuits against individual resident appraisers, while rare, need to be protected against. This can be done in a number of ways including specified real estate appraisal insurance and education around the different liabilities to look out for.

Higher Risks

Appraising properties doesn’t just involve residential properties, like houses or apartment complexes. Liability is much more relevant and a bigger issue when an appraiser works for a national firm that looks at large commercial buildings. There are more built-in legal issues with these projects as clients tend to have more sophisticated legal representation and have more financials on the line during the process of appraising.

Residential appraisers or small commercial professionals could be the target of negligence claims. The most likely claimant in a negligence suit is the borrower. If an appraisal is being conducted for a home loan, the lender will be the intended user, making them the only party that should be suing.

State Regulations and Laws

Uniform Standards of Professional Appraisal Practice (USPAP) is the outline of performance standards for real estate professionals in the United States. Adopted by Congress in 1989, it contains standards for all appraisal services and compliance is required for state-licensed and state-certified appraisers.

However, USPAP and certain state laws can differ from each other, making it even more important to understand the boundaries and rules to work within. In most states, the parties who can bring a suit against appraisers are those the appraisers knew would utilize the appraisal. It’s possible that a borrower in a loan could claim they borrowed too much because an appraisal came in too high. Or a homebuyer could say they couldn’t buy the property because the appraisal came in too low.

Physical Liabilities of the Property

In some cases, borrowers have brought suits against appraisers for not informing them of a termite infestation. In other cases, there may be a suit over items like a garage being built over a property line, for example. However, issues like these generally work in the appraiser’s favor in that they are there to deal with the appraisal for the loan, not for identifying certain conditions of the property itself.

Types of Suits

The bulk of lawsuits against real estate appraisers can come across as weak, such as issues with termites, noted above. However, some cases of negligence are legitimate, including incorrect mismeasuring the square footage of a building or house.

Appraisers have to measure a home, but sometimes they may look over it. Public records are available, showing the measurements of a house, but these should be double-checked first-hand in the appraisal process. The same goes for checking on the number of bedrooms a home has. While it may seem unlikely, sometimes appraisers can miscalculate the number of rooms in a house or confuse something like a home office as a bedroom.

Other claims have been related to failing to notice fire damage or leakage from a roof or substandard plumbing. If someone is not informed about the type of plumbing included in a home, for example, they may not choose to buy in the first place. Something like this might sway them to bring a suit of negligence against an appraiser.

About Associations Liability Insurance Agency (ALIA)

The ALIA Team (part of the Riverton Insurance Agency Corporation), specializes in helping real estate professionals find the affordable and comprehensive liability insurance they need, without the hassle. ALIA dates its roots to 1991 with the founding of FREA, Foundation of Real Estate Associates. In 2013, ALIA was created to work with multiple insurance companies thereby broadening the portfolio of products to customers. For more information about our products and services, contact us today at (800) 882-4410.