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

[PropertyEconomics]

Excellent case side bar also to those who routinely "appraise" based solely on Assessment Property Cards sans actual measurement - time to start flying straight and do the job - measure the damn house - or get out of the business before, or after, you get sued.

But Mr Kennedy ... I am under no obligation to measure the house nor even to see the house .. USPAP doesnt tell me I have to and that is the "bible" that I must hold to .... so why are you beating me up just because I didnt measure the house ... I DONT HAVE TO ... so there.


(Toungue in Cheek) :mellow:

 

[Bama Bayou]

In AL one reason there has not been third party liability for appraisals is based on the fact that the borrower never got a copy of the report until the closing was completed. They had no reason to rely on the report because they signed all the paper work before they even saw it.

Now they will get it three days before closing. Not good from a liability standpoint.

 

[Terrel L. Shields]

Excellent case side bar also to those who routinely "appraise" based solely on Assessment Property Cards sans actual measurement - time to start flying straight and do the job - measure the damn house - or get out of the business before, or after, you get sued.

Actually the use of courthouse records is possibly a preferred way of doing it. My old mentor used to say that in Texas where he came from, using those measurements were recognized as equal to personal measurement. Further, I suspect that the appraiser is as likely to make a measurement error as was the assessor. Even in the upper floors, especially of 1½ story houses with dormers, the measurements become problematic. Using ANSI standards for instance, might lead to much smaller "footprint" of the upper floors than the original plans and specs. This is a common occurrance. How is an appraiser going to refute a certified Architectural plan which indicates the upper level is 1,200 SF when you measure to the 5' level or so and come up with 920?...grounds for a suit? It would be extremely difficult to argue that those additional square feet were not "living area" when they are shown as such on the plans....and likely in a "used" house, you won't have those plans.

BTW, I appraised a very modern dwelling built in 1956..still very very good design. And the owners (3rd owners of the house) still had a copy of the plans.

Upper floors are an insolvable problem in the world of measurement and generally arguments over 100 -200 SF of GLA are pointless exercises and rarely affect value grossly. How many comparables have you personally measured to assure that the SF of those comps was accurately measured...and where do you go to find those SF??? Well, we go to the courthouse records and 99% of the Realtors will use the exact SF referenced in that assessor parcel card. So which is distorted more?

Personally, I measure what needs measured and don't what does not. On a $2,000,000 poultry farm I an not worrying about measuring a 1400 SF 20 years old house...and if the contract is paying the grower for houses that are 21,500 SF...then I am crazy to measure those and discover they actually are 21,612 SF....and try to adjust accordingly.

Like an old timer said to a teen-ager who took him on a wild ride over rough dirt roads. When they got to where they were going, the old man didn't say a word. But when they went to leave, the old man said, "Boy, this time drive like you had some Dam**d sense..."

It doesn't hurt to source your measurement and caveat it with comments about accuracy. In Fannie-speak appraising though, the emphasis has been on precise sizing and valuation by SF...which leads to a flawed concept. Many many older homes do not sell by size in the strictest sense, but rather on location, number of bedrooms and conveniences (extra fixtures, baths, kitchen) and, perhaps the most importantly, condition. SF is a distant factor in the overall value.

 

[timd354]

The bank has a fiduciary obligation to the borrower to extend credit in safe and sound manner, ie. in the best interests of the borrower, not just in the best interests of the bank. It obtains an appraisal as a part of this obligation.

For too many years, lenders have gotten away from this standard. This ruling is a double edged sword but one which I believe will inure to our benefit.

This has as much potential for increasing the standards of practice as any regulations we've seen in the past year.

Please explain how a huge expansion of the possible liability of appraisers, which will undoubtedly cause more appraisers to be sued (and yes many of those suits will be groundless and will just be attempts to get a settlement) and which will undoubtedly cause E&O Insurance premiums to rise sharply somehow will benefit appraisers.

I would recommend that all Arizona appraisers immediately raise their fees substantially as your cost of doing business has just increased substantially.

It is another example of courts favoring the plaintiffs even in cases where the defendant (in this case an appraiser) had no legal duty to the plaintiff. I would bet my house that the defendant has E&O insurance in this case and I would also bet that if the defendant did not have E&O insurance, the outcome of this case would have been different.

 

[timd354]

Banks have no such obligation. They are obliged to operate in a responsible manner to protect the assets of the bank, not the interests of borrowers.
No it hurts us badly. We already practice enough "defensive" appraising. No one can promise that exactly X is THE VALUE...no matter what. Too low we hurt the seller. Too high, we hurt the buyer. Even the Bible says you cannot serve two masters. Appraisers will learn to appraise these properties for EXACTLY the sales price to avoid being sued by one or the other parties.

The issue of Privity was compromised in the contract. I have been refusing to go along with contracts that have this appraisal caveat in them...ie.- that is they are depending upon the banks appraiser to determine the sales price. I bet your E & O insurance will counsel against appraising under such conditions. I would appeal to Federal court if possible.
If I encounter such provisions, then I will not appraise the property. The bank is my client and no one else.

A contract between two parties (the buyer and the seller) that have no relationship with a third party (in this case the appraiser) has nothing to do with the privity of contract, or the lack therof, between the third party (in this case the appraiser) and one of the other parties (in this case either the buyer or the seller).

 

[Peacemaker]

kinda scary, the report must have been done on the "old" form but the court is holding the appraiser to the verbiage of the new forms.

Page 18:

Our recognition of the duty owed by an appraiser to
the buyer/borrower, moreover, is consistent with evolving
industry standards that acknowledge that a buyer/borrower in
fact relies on an appraisal prepared at the request of the
lender. In March 2005, a few months after Blagg performed his
appraisal of the home Sage was to purchase, the Federal Home
Loan Mortgage Corporation (“Freddie Mac”) and the Federal
National Mortgage Association (“Fannie Mae”) issued a revised
Uniform Residential Appraisal Report for use by appraisers hired
by lenders in mortgage finance transactions. See Freddie Mac &
Fannie Mae, Uniform Residential Appraisal Report (2005),
available at http://www.freddiemac.com/sell/forms/pdf/70.pdf.
To be sure, consistent with the Uniform Standards of
Professional Appraisal Practice (“USPAP”), the form provides
that “[t]he intended use of this appraisal report is for the
lender/client to evaluate the property that is the subject of
this appraisal for a mortgage finance transaction.” Id. at 4.10
Significantly, however, the federal form also requires
appraisers to certify their understanding that the borrower and
a limited class of others in the same mortgage finance
transaction “may rely on this appraisal report.” Id. at 6.11 An
explanation in a Fannie Mae publication issued November 1, 2005
drives the point home:
The appraiser’s certification [] clarifies
that the appraiser is accountable for the
quality of his or her work to those who
often rely on it as part of a mortgage
finance transaction. The appraiser’s
accountability for the quality of his or her
appraisal should not be limited to the
lender/client and/or intended user
identified in the appraisal report.
Fannie Mae, Single Family 2007 Selling Guide

 

[PropertyEconomics]

A contract between two parties (the buyer and the seller) that have no relationship with a third party (in this case the appraiser) has nothing to do with the privity of contract, or the lack therof, between the third party (in this case the appraiser) and one of the other parties (in this case either the buyer or the seller).

Hey Perry Mason .. can you put that in English (I know not a language spoken much in the US any more) and can you provide your thoughts on this case ??????

 

[Steve Metz]

I would recommend that all Arizona appraisers immediately raise their fees substantially as your cost of doing business has just increased substantially

With this ruling a 1004 should be in the $800-$1000 range.

 

[PropertyEconomics]

I would recommend that all Arizona appraisers immediately raise their fees substantially as your cost of doing business has just increased substantially

With this ruling a 1004 should be in the $800-$1000 range.

Steve ... how has the cost of doing business increased substantially? Is there any value difference between an appraisal for market value ordered and provided to a lender and an appraisal for market value ordered and provided to an owner / borrower? While liability may have slightly increased, it has always been there, I dont see much difference honestly and Id like your thoughts.

 

[timd354]

Hey Perry Mason .. can you put that in English (I know not a language spoken much in the US any more) and can you provide your thoughts on this case ??????

Without getting into the legal mumbo jumbo, I have read the opinion and I believe that the court basically decided to stick it to the deep pockets of the appraiser's E&O Insurer. I base my conclusion upon the fact that this very same court made the opposite ruling on at least 2 separate occasions in similar lawsuits involving appriasers, with the most recent ruling being in 2004. They basically ignored their own precedent and justified their decision based mainly on a legal textbook from 1977 (which is obviously prior to their own decision in 2004) and a decision of the Washington State Supreme Court from 1995.
Interestingly, and just as I predicted when the Fannie Mae forms were changed in 2005, the court also cited the language from cert #23 in the revised appraisal 2005 forms as further support for their decision....this is particularly interesting as the appraisal report at issue was performed before the new forms were put into effect. This is particularly disturbing since the court is using the language from the new Fannie form and a Fannie publication explaining the new form and applying it retroactively to an appraisal completed before the new form was even adopted. This shows the complete and utter bias of the court IMHO and this type of judicial conduct should sccare the hell out of any one who conducts business of any type.