Appraiser hired by lender owes a duty to buyer/borrower.

[Cigar]

that the this seller's agent just might have a really nice, large, chunk of that liability also? That the buyer didn't see that as a red flag would be amazing, but any seller's agent doing that has the IQ of a (complete sentence with something here).

Agreed, not knowing the facts of this case, only the legal issues presented at appeal, the words do lead me to believe that the primarily legal liability should lie with one or more agents.

Why would a reasonable person believe all real estate appraisal scopes of work are exactly the same, and not understand when they are not the outcomes can be completely different? You tell me, ignorance?

I think lawyers, courts, and the general public have a right to assume that nobody knows more than an appraiser as to the value of property, he's a professional at determining value, and any two or more appraisers' opinions of value should be reasonably close, at least with a margin of error of less than 10%. If appraisal is that inexact a science the public should be informed, lots hinges on appraisals, Probate Courts' dispositions, Family Law Courts' dispositions, and as we have seen the economy of the world, including the solvency of cities and retirement funds above the Arctic Circle.

the inference here is that the value opinion of the appraiser is higher to a lender than a buyer

I don't observe where you get that or where it was inferred anywhere in this thread.

It seemed to me that the whole underlying case was based upon an assumption that the appraiser appraised the property higher for the loan to meet the numbers as opposed to the actual value of the property (of course I'm not privy to the facts in the underlying case)

Regardless, square footage will continue to be one of the top five issues litigation circles around simply because it is one of the most easy of items to find to dispute.

I agree, unfortunately, the whole world thinks that square footage is an accurate indicator of cost, and too many equate cost with value, and even more equate cost with market value. It's a major frustration to builders to have the phone ring with an immediate question: "How much a square foot do you build houses for?"

If we are going to create an adversarial relationship, like litigation inherently is, then there should be three appraisals on every transaction, the seller, to know how much he might get, the buyer to know how little he might get it for, and the lender to know how much he can get for the property in the event of default. Then let informed negotiation begin.

The issue of Home Inspectors has come up, a sadly lacking bunch to say the least, populated largely with failed contractors and originally set up merely as a legal shield for realtors who were being sued because of their lack of knowledge and misrepresentations. Their reports are a determining factor in the value of the property to all parties, I think appraisers should have a home inspectors' report, a termite report, and an air quality report in hand together with corrective bids prior to making an appraisal, what good is an appraisal for $500,000 to any party if it's going to cost $300,000 to bring the property to escrow, or to be used in a bargaining chip to reduce the sales price?" When an appraiser finds a comparable sale for $500,000 how does he know whether it took $300,000 to bring that property to market for $500,00, or $500,000 was paid at escrow and then the buyer spent $300,000 to cure the defects for himself and/or the lender?

 

[Elliott]

Quote:
Originally Posted by Elliott
Always fun to watch appraisers play lawyer.

Ken B. said,
How do you know they are playing?


Good point. Don't know if they really are appraisers.

 

[Highlander416]

Oh Immortal One!!! As part of your vast journeys over the centuries... have you ever actually read a home inspection report? The entire reports including the 1,500 disclaimers placed in them that pretty much appear to reduce most of them down to .... "So I looked at your house? So what?" and noted they get the buyer to sign off on all those disclaimers?

Tell me, where is the buyer signature line on our reports?

You have a good point. I wonder how many lawsuits/E&O claims are actually made against appraisers each year.

 

[DWiley]

It would seem to me that an appraisers report as to his/her opinion of value on a given date should be applicable to the whole world of potential users, foreseeable or not, if it's viable for a lender it should be viable for a buyer, seller, the IRS, the State Taxing authorities, or any other third party, to claim that it's an accurate portrayal of value to a lender but not a buyer or seller defeats the legitimacy of the report

The idea that all appraisals are (or should be) suitable for all uses is simply not valid. The credibility of any appraisal must be considered in the context of the intended use; the concept of scope of work is not unique to appraisal.

When I take my 10 year old daughter in for the physical that is required before she can play softball, should the doctor perform the same scope of work that he is going to perform when I turn 45 and get a physical in a few weeks? I don't think so.

It does not diminish professionalism to provide a variety of services. We will never be a real profession until we break out of the "one size fits all" mentality and stand up to those who use reports in ways not intended by the appraiser.

 

[DWiley]

P.S. ... Mr. Wiley, sharpen your USPAP pencil !!! If we go to the SOW rule, there is no possible way the appraiser can determine a proper SOW to comply with such a contract contingency, as the appraiser is clueless as to the intentions of the seller and buyer regarding the level of required SOW in order to comply with the contingency. And the lender is also and cannot properly advise the appraiser about what required information the appraiser would have to have to develop a needed SOW. As the lender / client of the appraiser is ALSO clueless what is going on in the minds of the seller / buyer when they signed that contract clause.

Therefore, the appraiser CANNOT develop a SOW for the assignment....

Part of problem identification is the identification of assignment conditions. This is done via communication with the client. The contract may contain provisions related to the appraisal, but they are not generated by the client, and, as you have pointed out, they are typically not the client's concern. If the client wants such provisions considered, then it is up to the appraiser to communicate with the client to discern that.

"Intended use" and "intended users" are not based on the intentions of some third party. They reflect the intent of the appraiser, based on communication with the client. The fact that some other party plans to use the report for some use not intended by the appraiser is not germane to the appraiser's SOW decision.

This is why identification of the intended use and intended user is required in the report - so a reader of the report knows the intent of the appraiser, and is placed on notice that other uses and other users are not intended.

 

[timd354]

Part of problem identification is the identification of assignment conditions. This is done via communication with the client. The contract may contain provisions related to the appraisal, but they are not generated by the client, and, as you have pointed out, they are typically not the client's concern. If the client wants such provisions considered, then it is up to the appraiser to communicate with the client to discern that.

"Intended use" and "intended users" are not based on the intentions of some third party. They reflect the intent of the appraiser, based on communication with the client. The fact that some other party plans to use the report for some use not intended by the appraiser is not germane to the appraiser's SOW decision.

This is why identification of the intended use and intended user is required in the report - so a reader of the report knows the intent of the appraiser, and is placed on notice that other uses and other users are not intended.

Mr. Wiley, like usual, you get it. Unfortunate, I think that some courts, including the Arizona court, do not get it and will hold appraisers liable for the misplaced reliance of third parties on the appraisal even if the appraiser did not intend such third parties to be an intended user and even, in some cases, included a disclaimer specifically warning non-intended users not to rely on the report for non-intended uses.

I find it absolutely reprehensible and counter to the notion of justice that courts would simply aborgate the legal concept of contractual privity which goes back hundreds of years (and is rooted in English common law - which is the basic foundation of our entire legal system with the exception of Louisiana) in an obvious effort to get at the deep pockets of appraisers' E&O insurers in order to pay a sympathetic class of victims/homeowners.

Anyone who knows how the legal system works, knows that the oft copied statue of a blindfolded Lady Justice is a complete an utter joke in reality.

 

[Randolph Kinney]

If the court wants to find deep pockets for the homeowner, they should make the lender liable for the appraisal results since they had the responsibility of exercising due diligence and reasonable care for not only the loan but the asset securing the loan.

 

[Webbed Feet]

Just another rant I guess.

Cigar,

This thread really brings up so many stinking issues that I almost don't know where to start in responding to you. However, it makes sense for me to start where this case we are talking about really started. And it is staring everyone in the face here. You and I have already touched on it.

After her offer was accepted, on the advice of the seller’s real estate agent, Sage asked her lender, Security Mortgage Company (“Security”), to retain Joseph Blagg of Blagg Appraisal Company, LTD, to perform the appraisal.

The above has so many levels of “wrong” to it I could not blame the court for allowing the case to go forward based on the above alone. The list of parties involved in possible mortgage fraud and violation of lending rules is just endless here. First, the selling agent has no business recommending one solitary real estate appraiser to a buyer and should be held liable for so doing. Any real estate broker worth a damn knows never to do anything other than provide a list of many service providers for literally anything, not just one provider. Second, the buyer is NOT to be selecting the real estate appraiser when a mortgage is involved under FIRREA. Third, the negligent mortgage broker involved does, or certainly should, know all of the above VERY damn well that they absolutely cannot allow a borrower to be involved in the selection of the real estate appraiser. And they should know damn well they can't allow real estate agents, involved in the transaction, to be steering buyers into one appraiser either. Finally, the appraiser involved should have known all of this, and if he was aware the above is how things were being handled, and had a brain in his head, he should have backed out of the assignment. The real very, very, wrong thing here is every professional, every step of the way, certainly may have failed in their ethical duties and all of them believe as long as they can show the mortgage broker “ordered” the appraisal then everything is all ok. Well, it is NOT “Ok!” It has never been “Ok.”

The above is exactly why you are now posting;

It seemed to me that the whole underlying case was based upon an assumption that the appraiser appraised the property higher for the loan to meet the numbers as opposed to the actual value of the property (of course I'm not privy to the facts in the underlying case)

and I cannot blame you one iota for it. Who you, we, the buyer, and the courts do have to blame are first the agent involved if the agent steered the buyer to one appraiser , then the mortgage broker involved for allowing it, and finally the real estate appraiser involved if the appraiser was aware of what the agent and mortgage broker had done. Because there is indeed an appearance of collusion and an ethical breakdown, by all three parties, if the appraiser also knew about it. If the appraiser did not, the ethical break came from the agent and mortgage broker, and the appraiser is catching literally all of the blame for simply having been human and possibly having made a mistake. In this latter case, it was the agent and mortgage broker actions that has made the possible motivations of the appraiser look bad. The reality here is all three should probably be deeply embroiled in the lawsuit if any of them are. My question would be why is the focus just on the real estate appraiser?

Moving on here, I'm not sure you read the entire thread. There is a far larger picture here and I have to very much agree with Mr. Wiley. I posted this up the thread, I'll do so again. When you say;

I think lawyers, courts, and the general public have a right to assume that nobody knows more than an appraiser as to the value of property, he's a professional at determining value, and any two or more appraisers' opinions of value should be reasonably close, at least with a margin of error of less than 10%. If appraisal is that inexact a science the public should be informed, lots hinges on appraisals, Probate Courts' dispositions, Family Law Courts' dispositions, and as we have seen the economy of the world, including the solvency of cities and retirement funds above the Arctic Circle.

the narrow view represented by your above comment, in reality, disservices everyone you think should have a right to make those assumptions, and the appraisal field as well. I'll point out that you could say the very same thing about medical doctors. Yet how many medical doctors, every day in this country, make vastly different diagnoses of the very same patient based on each doctor having a different “Set” of data about that patient? Mr. Wiley's analogy is spot on. Buyers and sellers, agreeing to a contractual clause of “a medical exam must meet the price,” are just as negligent themselves when they fail to define what they mean by “a medical exam!” Just what is a “medical exam?” Such things happen to come in all sorts of flavors, so do real estate appraisals. It is negligent of buyers and sellers to allow a third party (lender), with completely differing motivations than they, to define the kind of medical exam that is going to be used without having any remote idea what the buyers and sellers thought was meant by it. Or does our society really believe that a lung cancer patient should allow their medical insurance company to send them to a chiropractor for treatment, not inform the chiropractor what the treatment is supposed to be for, not allow the chiropractor to interact with the patient in order to find out what the treatment should have been for, and then have society say the patient should be able to sue the chiropractor?

I appreciate my above analogy is a little off. But it holds up. Appraisers cannot very well draft a scope of work (SOW) suitable for the intentions of buyers and sellers when they use undefined to themselves contractual terms like “an appraisal” in a contract! When by definition all an appraisal is would be an opinion of value. And, these parties to that contract hand the definition of how that gets performed over to a party (a lender or money origination source) that not only has no idea what they think one is, but also doesn't give a flying rip! So the facts really are, that yes, a SOW could be ordered by a lender that could very well result in a very professional and good opinion of value being even 100% different than what a SOW the buyers and sellers thought would be used might result in!!!!!! Meanwhile, the real facts are the vast majority of buyers and sellers, that sign such clauses, do not so much as even have any thoughts about what they thought an appraisal is! … The ONLY thought they have is they thought all real estate appraisals were all the same! Meanwhile, the selected appraiser is prohibited from so much as attempting to discuss the SOW ordered with any of them.

Based on the above our society is to say that these idiots that are agreeing to a contractual clause, a clause that they have no inkling what it means and they created it, should be able to later hold some poor ******* that was not so much as allowed to discuss it with them, to the fire for their own stupidity because they managed to find an error in the poor *******s work later and want somebody to blame for their own undefined contractual actions? All because civil law says they became third party beneficiaries to something they failed to tell anyone else what they thought it was and let a disinterested third party (lender) decide what they were going to get and who was going to do it? All of it regardless of anything regarding the actual experience level of the person the lender selects for the lender's needs? When it is clear today all lenders need is cheap and fast, with everything else being a (wink, wink, wink) lie about appraiser selection by lenders going on? In fact, many lenders have handed this function off to outside businesses that really have no standards of any kind beyond who bid the job cheapest and can get it done in 24 hours?

Cigar, I appreciate that civil law apparently has no issues tossing some party, that is not so much as allowed to communicate with buyers and sellers in order to understand their intentions in such cases so the party can determine if they are competent for those intentions and if so proceed accordingly or not, under a steam rolling legal train. … But I have a problem with it, and I would sitting on a jury if anyone bothered to make me understand the situation as it really is.

 

[timd354]

If the court wants to find deep pockets for the homeowner, they should make the lender liable for the appraisal results since they had the responsibility of exercising due diligence and reasonable care for not only the loan but the asset securing the loan.

The Arizona court may well have extended liability to the lender in this case, however, the plaintiff did not sue the lender, but only the the appraiser, so the issue of lender liability was simply not an issue before the court in thuis case. However, if I was the corporate counsel for a lender doing business in Arizona, I would make the assumption, based upon the ruling in this case, that the Arizona court may well extend liability to the lender and would draft a waiver that I would make loan applicants sign as part of the loan application.

 

[Webbed Feet]

Part of problem identification is the identification of assignment conditions. This is done via communication with the client. The contract may contain provisions related to the appraisal, but they are not generated by the client, and, as you have pointed out, they are typically not the client's concern. If the client wants such provisions considered, then it is up to the appraiser to communicate with the client to discern that.

"Intended use" and "intended users" are not based on the intentions of some third party. They reflect the intent of the appraiser, based on communication with the client. The fact that some other party plans to use the report for some use not intended by the appraiser is not germane to the appraiser's SOW decision.

This is why identification of the intended use and intended user is required in the report - so a reader of the report knows the intent of the appraiser, and is placed on notice that other uses and other users are not intended.

Mr. Wiley,

I absolutely agree with you! But your above wasn't my point. My point was that apparently civil law is taking a completely different path about that, and one that is beyond hazardous for the appraisers involved. There is, in my opinion without any doubt, a very big conflict here! We are being held responsible for assignment conditions under a set of circumstances wherein we are not allowed to so much as communicate about SOW, or alter it even if we could communicate, with parties courts are saying we were responsible to!!! I am saying, IF we are indeed responsible to those parties under court determinations of civil law, we are not allowed to follow the SOW Rule with those parties at the same time, then we need the ASB to come out of the closet and say this represents and unacceptable assignment condition. We need it for the sake of the industry!

I am saying our entire trade needs to be able to turn around to lenders in such cases and inform them all of us are required to withdraw from assignments with a sales contract clause like that one combined with a lender or AMC being our clients. Because it is now impossible for us to comply with the SOW Rule. We need this decision and we need it published! The courts are in fact making sellers and buyers defacto secondary clients of all real estate appraisers in the face of such a contract clause... Only they are clients we are not allowed to discuss SOW with or alter it to comply with USPAP for their needs after we find out what the heck they are thinking a real estate appraisal is? The lenders are NOT the legal "agents" of the sellers and buyers with legal authority to represent them in the performance of that sales contract, now are they? So I think the facts are no appraiser can say the lender had the authority to be informing the appraiser as to the intentions of the other parties to that contract so the appraiser could comply with the SOW Rule for those parties who are defacto secondary clients under civil law.

This is a situation where the ASB, USPAP instructors, all need to step away from an administrative law view and wake up a bit. We NEED you all to force this into a situation where lenders get to inform such sellers and buyers the lenders cannot obtain any appraisal at all due to their clause wording. I am saying it is clearly a matter the ASB should stand up for appraisers on and declare it to cause an unacceptable assignment condition because no appraiser can comply under the SOW Rule for the situation.

Or do all of us tell lenders that order exterior onlys on sales.. "Gosh sorry, the other clients need a different SOW than you do. Oh! and good luck on that FIRREA violation!" ? Because, if I get anything Cigar is saying at all, civil law could give a flying rip what we place in our reports regarding intended users, in the face of such a sales contract clause, because of beneficiary creation of a second client. Second clients, one of whom is now the borrower.