Appraiser or Home Inspector?

The blurring of lines between an appraisal inspection and a home inspection is continuing to place pressure on appraisers and raise many questions. More and more appraisers are being retained to prepare an appraisal, note repairs and their costs, and to verify that repairs are professionally made. Appraisers not only are being expected to assume the responsibility of construction inspectors but now home inspectors—detect if a property has used plaster or synthetic stucco, or contains a radiant heating system. Arguably, appraisers are being asked to cross the line from "appraising" to "building inspection". When that line is crossed, appraisers must protect themselves from potential liability.

Construction Inspector

For new construction, the appraiser often prepares the appraisal report "subject to completion", and is retained by the same lender to make construction progress reports upon which contractors` reimbursements are based. Those appraisers conducting these reports should never note a property is 100% complete unless they see it for themselves. There are cases of contractors staging a frenzy of activity on site, because an appraiser is expected— especially for the final reimbursement inspection. The contractor promises the appraiser that everything will be done within days, pointing out his impressive work crew. Often however, once the appraiser leaves so do the additional workers.

The appraiser believing the property is finished notifies the lender, and the lender pays the contractor`s invoice in full. The contractor may leave without finishing and the property owner is left with an incomplete house. The only person left to sue is the appraiser because he/she notified the lender that the property was 100% complete when it was not.

The appraiser could avoid this scenario by accurately reporting to the lender that the house was nearly complete, yet workers were still on site during the final inspection. Always allow the lender to make the decision about what the contractor reports. By taking photographs of the site, you can show the lender the actual stage of construction. If the lender decides to make the final payment based on this information—that is the lender`s prerogative. Finally, have complete property plans and specifications to reference when checking each stage of contracted work.

EIFS: Exterior Synthetic Stucco

In some areas of the country, appraisers are expected to detect if a property has used plaster or synthetic stucco. Synthetic stucco has been used on houses since 1969, and is typically found in homes less than 10 years old-predominantly on the East Coast. Exterior Insulation Finish System (EIFS) is a material used instead of plaster stucco. This synthetic stucco is applied over rigid insulation and can be easily mistaken for plaster stucco. Reports show that EIFS limits the ability of moisture to escape from an interior structural wall once it enters through a poorly caulked window, door, pipe penetration, roof leak, etc., resulting in severe structural decay of the wall due to prolonged moisture build up.

In contrast, traditional plaster stucco is hard like cement. An appraiser can "test" for EIFS because it is soft, dents, and gives a little when pushed with a finger or palm. Taking photos while pushing the EIFS in with a pencil will show the "give". When EIFS is detected, make note in the appraisal report and recommend that an EIFS specialist inspect the property. Also, add additional language under a "Scope of Work" section in the addendum to the appraisal report to clarify "as the appraiser" you are not trained or qualified as an EIFS specialist. You may also add the following; "nor is the appraiser qualified to render any opinion regarding the cost to repair or replace the product."

Radiant Heating Systems: Heatway and Goodyear`s Entran II Hoses

In colder climates, appraisers are often expected to determine whether a radiant heating system at a property is functioning satisfactorily or may be defective. Typically, a radiant heating system works by having an electrical pump force a solution of hot water and anti-freeze through loops of rubber tubing laid into a concrete bed, or stapled under floorboards. When problems occur, as they have with the Heatway systems, the tubes corrode and leak—resulting in black goo and extensive, costly damage to the property and loss of heat. Goodyear`s Entran II rubber hose is also known to corrode and leak causing serious property damage and expense. This has created a stigma in houses having this heating system, resulting in lower property values or an inability to sell the house.

Appraisers should protect themselves by asking the owner, seller or agent if the property has any type of radiant heating system, whether a Heatway system or other. Add additional language in the addendum to the appraisal report that the property has a radiant heating system and may contain an Entran II hose. Also recommend a professional inspection of the heating system, if there are any concerns. Also add the following to the report; "the appraiser is not an expert or qualified in heating systems nor in estimating the costs of repairs."

Conclusion

More clients than ever are demanding that appraisers perform "home inspections" exceeding the scope of an appraiser`s duty. Other than declining assignments, appraisers do not have much recourse. Therefore, it is important to add clearly written additional language to the appraisal report, showing:

  1. You noted a condition may exist;
  2. You requested information and included the facts provided;
  3. You recommended an inspection by a qualified expert.

It is important to articulate that you are a qualified "appraiser" not a "home inspector" with specialized training or expertise. Anytime a client asks the appraiser to perform an inspection they are not qualified to do, there is a problem. Discuss with your client why you recommend an inspection by a qualified expert. Explain your limitations and remember your integrity and appraisal license/ certification is on the line with every appraisal you write. By maintaining your integrity, you enhance the reputation of the appraisal profession. We hope our suggestions will help you to defend your appraisal when increased expectations begin to "blur" the line.

Copyright 2001. LIA Administrators and Insurance Services. All rights reserved.