As an appraiser in the real estate business, the danger of lawsuits is a very real one. Mortgage agencies continually force you for higher values, lenders are looking for simpletons, and shady "investors" are looking for easy target to help them carry out mortgage fraud. There are not so many ways on how to cope with with this risk.
1.) Avoid it. Do not do something that would turn you into a likely target.
2.) Reassign it. Transfer the weight to another person such as a client or somebody else.
3.) Be in charge. Know and use the legal system to your advantage; create a relationship with a competent attorney who will help you in your affairs to pre-avoid liability. Get an insurance company that is highly regarded to support you.
4.) Acceptance. Admit that the problem exists and insure against it, such as with an errors and omissions insurance.
5.) Ignore it. Assume it never happened and pray it never will.
6.) Give it up. Alter your profession to something that is less adversarial.
Here are a few common reasons why a home appraiser gets stuck in a complaint and court cases.
1.) Unable to observe and tell somebody of any development and irregularity. If you request for a duplicate of the purchase agreement, it would be best if you can get the Seller’s Disclosure form signed. Include a statement to the appraisal that indicates that the appraiser has reviewed the Seller’s Disclosure Statement. Secure a duplicate of it in a work file. When the time comes to inspect the site, remember to check with the seller if there are problems about molds. The appraiser could even present the seller with the appraiser’s own form for the seller to review, answer, and sign.
2.) Erroneous calculation of total living area. While on an assignment, the appraiser should never rely upon what is in the MLS system for living area, the former appraiser’s sketch, an old survey, and the county records stating the living area or the set of plans from the architect. The construction plans of the living area should be confirmed using a CAD program. If the appraiser waits for the final check up to verify it will be too late. If the seller has an addition to the living area, such as an enclosed porch or garage/carport, this area should always be separated in the report and in the sketch – even if the area is given equal contributory value. All modifications to the living area even if the computed area is still the same should be noted separately in the report and on a separate sketch.
3.) Didn’t report leakage of the roof, settlement or foundation cracks, wet basements, termite infestation and mechanical failure.
4.) Reaching a decision that the property is overvalued or undervalued. Fraud is most commonly an issue of competency and Errors and Omission Insurance does not cover the appraiser when you’re charged with fraud. It was stated that approximately 15% of all fraud cases deal with inexperienced appraisers.
5.) Appraisal of wrong real estate.
6.) Failure to check and double check, that’s it. Consists of items of the entire 1004 form of the Federal National Mortgage Association such as utility hookups, zoning, lot dimensions, County assessments, correct owner of record, subject’s history (both sales and listing), etc… Evaluations should be loaded with verification.
7.) Defamation. A review appraiser can be sued once he or she insults the appraiser rather than the report.
As an appraiser, you can prevent any litigation if you are aware of the dangers regarding your appraisal and steer clear of them as much as possible.
