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

[NORTON]

i think it would benefit an appraiser if they missed sales price by $100, then it would put the buyer on hook to take the chance to buy or not...and not possibly blame the appraiser at a later date.....how long until if the appraisal comes in above....does the seller sue us for allowing a buyer to purchase a house under value?

 

[Cigar]

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)

The courts effectively abrogated privity in McPherson vs. Buick Motor Company in 1916.

A famous 1916 New York Court of Appeals decision, MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050, expanded the classification of "inherently dangerous" products and thereby effectively eliminated the requirement of privity—a contractual relationship between the parties in cases that involve defective products that cause personal injury.¹

Granted this was a tort case and not contract case, but since 1916 privity of contract has been relegated to the dustbin of archaic law, damages are damages, no matter how they are inured or under what circumstances they occur.

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.

A hypothetical case:

An individual dies leaving an estate in trust, the trust consists of $100,000 in cash and a free and clear house worth approximately a million dollars, the trustee goes to his bank and files an application for a loan for use in administrating the trust. The bank sends an appraiser to the home and the trustee meets the appraiser at the home to let him in and at the request of the bank to pay the appraiser, while there the trustee tells the appraiser that he would like a copy of the appraisal to use both in distribution of the estate and for tax purposes with the IRS, the appraiser informs the trustee that he can't do that, his client is the bank, but he will be glad to provide two other appraisals to the trustee for tax and distribution purposes, the trustee agrees and retains the appraiser for two additional appraisals with a $1,000 deposit check for all three appraisals.

The trustee thereupon provides three market value appraisals:

1) To the bank for loan purposes
2) To the trustee for estate distribution purposes
3) To the trustee to provide the trust's CPA for tax purposes

Should not all three of these market value appraisals be for the same amount of money? If not, why not? How can a property have differing market values on any given day in the professional opinion of any one appraiser?




¹ http://legal-dictionary.thefreedictionary.com/McPherson+v.+Buick+Motor+Co.

 

[Elliott]

Cigar,
Good citations. If it doesn't involve a wheel falling off of
something it isn't a good liability case. How a case that
involves the duty of an agent to a remote beneficary
can be promoted to being held liable is creative, but
escapes me. Its like finding rights established in European
courts or relying on the new doctrine of 'empathy.'

 

[Cigar]

How a case that
involves the duty of an agent to a remote beneficary can be promoted to being held liable is creative, but escapes me.

Elliott:

The courts have long held that under third party beneficiary law the third parties must be "foreseeable" and "intended":

A third party beneficiary, in the law of contracts, is a person who may have the right to sue on a contract, despite not having originally been a party to the contract. This right arises where the third party is the intended beneficiary of the contract, as opposed to an incidental beneficiary. It vests when the third party relies on or assents to the relationship, and gives the third party the right to sue either the promisor or the promisee of the contract, depending on the circumstances under which the relationship was created.
In English law, the doctrine was not recognized at common law, but a similar concept was introduced with the Contracts (Rights of Third Parties) Act 1999.¹

For purposes of my hypothetical I crafted the scenario to be sure that both the trust beneficiaries and the IRS were both foreseeable and intended.

So my question remains, how can any one appraiser provide three differing market values on any given day? BTW, another reason for the hypothetical crafted as I did is that a trustee has a fiduciary responsibility to provide all appraisals to all parties, in this instance he would have to provide all three appraisals to the Court, the CPA and each beneficiary, I am unaware of the CPA's responsibility to the IRS, whether he can provide only one or must provide all.


¹ http://en.wikipedia.org/wiki/Third_party_beneficiary

 

[Smokey Bear]

Cigar, do you like wrestling with pigs? You're going to get muddy. LOL What people don't get here is that the courts don't give a rat's butt about USPAP. It binds US, not the borrower. They're going to apply common law. We need to find ways to protect ourselves outside of the appraisal itself and USPAP.

 

[timd354]

Elliott:

The courts have long held that under third party beneficiary law the third parties must be "foreseeable" and "intended":

For purposes of my hypothetical I crafted the scenario to be sure that both the trust beneficiaries and the IRS were both foreseeable and intended.

So my question remains, how can any one appraiser provide three differing market values on any given day? BTW, another reason for the hypothetical crafted as I did is that a trustee has a fiduciary responsibility to provide all appraisals to all parties, in this instance he would have to provide all three appraisals to the Court, the CPA and each beneficiary, I am unaware of the CPA's responsibility to the IRS, whether he can provide only one or must provide all.


¹ http://en.wikipedia.org/wiki/Third_party_beneficiary

Cigar,

No offense to you, but if poking around the internet and reading some wikipedia entries is the extent of your legal training, its no wonder you don't really get why the court abrogating privity in a product liability case involving an inherently dangerous product (an automobile) is not similar to the Arizona case involving the abrogation of contractual privity in a case involving an allegedly improperly done appraisal.


There is a reason that almost every state requires a legal degree from an accredited law school and passing a 2 day long examination (one day of which involves all written essays....no multiple choice) before they allow someone to practice law.

Really, most people who do not have actual legal training and actual experience in the legal system, really have no clue as to how the justice system works, their legal rights and libilities, or even how most laws that apply to everyday life are interpreted.

I will just give you two myth among many that the general public believes about the law:

Myth #1:
Most people believe that individuals have the right to appeal their cases up the system of courts all of the way to the U.S. Supreme Court. Most people are shocked to find out that they simply have no right of appeal to the Supreme Court (Constitutional or otherwise).

Myth #2:
Most people believes that he U.S. Constitution contains a general right to privacy. I will send anyone $10,000 who can cite anywhere in the text of the United States Constitution where the phrase "right to privacy" appears or even where the word "privacy" appears.

 

[Cigar]

Tim:

This is not a privity of contract issue, it is a third party beneficiary issue, and I submit that all buyers and sellers foreseeable and identified to the appraisers can claim third party beneficial status to an appraisal, and yes I have taken and passed the California bar examination and it is a three day examination, two days written and one multi-state, but am a retired builder and not a practicing attorney at law. I do agree with your prior statement that courts are going for the deep pockets as public policy, and in their quest to make injured parties whole they will reach to find exceptions in the law, and in the Arizona case as well as most appraisal cases the appraisers E&O insurance provides the deep pockets sought. California has a very liberal court system, I haven't even seen privity of contract pled for many years, of course it's seldom seen becasue if granted in would be as a demurer or summary judgment motion in pre-trial proceedings. Yes you could assert privity of contract, and I could plead third party beneficial status, in a liberal jurisdiction I would win, in a conservative one you might win, then the appelate courts could deal with the issue, most E&O carriers won't pay for the appeal preferring to throw money at a settlement, and then cancel the insured.

I think the issue now is how there can be differing appraisals from the same appriaiser on the same date, why not address my hypothetical?

 

[DWiley]

Should not all three of these market value appraisals be for the same amount of money?

Your scenario seems to assume that the scope of work would be the same for all three reports. If that were true, then the results should be the same - but the scope of work may not be the same. In fact, in the examples you cite, certain elements of the assignments must be different, or the appraisals have not been properly prepared.

If an estate includes a property worth something in the neighborhood of $1 million, and the estate wants a small credit line to cover estate expenses, a lender may request an exterior-only appraisal. In such a case, the square footage may come from a tax card, an old MLS listing, etc. So, the size used to develop the opinion may be different than the size determined by actual measurement. In the real world we have run into this many times.

For analyzing estate taxes the appraiser should be using "Fair Value" rather than "Market Value." While that might not affect the actual appraisal, it certainly affects the report. Also, for estate taxes it is likely that the effective date should be something other than the inspection date. In many markets that could make a big difference in the value conclusion.

 

[Terrel L. Shields]

The courts effectively abrogated privity in McPherson vs. Buick Motor Company in 1916.

Privity is upheld in many states as well as federal court. The U S appeals courts hold state issues to state standards...ie.-if an appeal comes to them from Arkansas, they look at Arkansas law for guidance on the statutes of limitations, for instance. I am not saying in certain situations it cannot be challenged but it is far from dead. There are hurdles to many of these exceptions to common law.

 

[Cigar]

For analyzing estate taxes the appraiser should be using "Fair Value" rather than "Market Value." While that might not affect the actual appraisal, it certainly affects the report. Also, for estate taxes it is likely that the effective date should be something other than the inspection date.

What is the difference between "Fair Value", "Fair Market Value" (required by Probate Courts and the IRS), and "Market Value"? Are they different on a given date?