Limiting Conditions: Are they really effective in protecting against lawsuits?

Many appraisers assume that the use of limiting conditions will protect them from lawsuits. This is a dangerous presumption. Courts often view the standard clauses as meaningless language that is buried in the contract and not approved or understood by the client. The law looks upon any type of limiting conditions or disclaimers with disfavor.

We are not advocating that you eliminate limiting conditions from your reports. Rather, we recommend that you incorporate a few simple steps to increase the effectiveness of these clauses.

First and foremost, the proposed limiting conditions should be discussed with the prospective client prior to accepting the assignment. Evidence that you negotiated the inclusion or exclusion of certain conditions with your client 'Nill be extremely valuable in the event those conditions are later challenged.

The final clauses should be a separate document from the completed appraisal report and should be presented to the client prior to the submission of the report. Any questions or concerns should be discussed and resolved at that time.

Lastly, you should require the client to sign the final limiting conditions to attest that he/she has received and accepted its contents.

To illustrate, we can look at two limiting conditions found in most appraisal reports:

Limiting Condition #1

"The appraiser assumes that there are no hidden or unapparent conditions of the property, subsoil, or structures, which would render it more or less valuable. The appraiser assumes no responsibility for such conditions, or for engineering which might be required to discover such factors."

This common clause has proven to be ineffective in court. Actual claims de against appraisers have included failure to discover and disclose extensive termite infestation , failure to detect a drainage and moisture problem which resulted in extensive mold and mildew, and failure to note the presence of a sump pump on the property.

These are just a few of the many claims filed against appraisers for the alleged failure to discover and disclose hidden or apparent defects and conditions of the subject property. The presence of a limiting condition such as the one quoted above would probably not release an appraiser from potential liability.

Rather than merely relying on the standard clause quoted above, you might consider rafting and negotiating an additional condition with your client. For example, consider the following language:

"It is assumed that there are no structural defects hidden by floor or wall coverings or any other hidden or unapparent conditions of the property; that all mechanical equipment and appliances are in good working condition; and that all electrical components and the roofing are in good condition.

If the client has any questions regarding these items, it is the client's responsibility to order the appropriate inspections. The appraiser does not have the skill or expertise needed to make such inspections. The appraiser assume no responsibility for these items."

Negotiating such wording, discussing the same with your client and having the client sign off on the condition will be far more valuable to you than presenting the routine language of Limiting Condition # 1 to the court.

Take, for example, another limiting condition which has been seen and utilized by almost every Appraiser:

Limiting Condition #2

"It is assumed that the rental income information supplied by is accurate. The appraiser assumes no responsibility for independently verifying this information. If the client has any question regarding this information, it is the client's responsibility to seek whatever independent verification is deemed necessary."

Negligence claims against appraisers alleging failure to confirm easily verifiable in rmation are among the claims most frequently made against appraisers. In one case, an appraiser was sued for failure to verify rental income figures that were supplied to him by the realtors. Another appraiser was sued because his report was based upon allegedly inaccurate comparable sales figures which were provided by the builder/seller.

Rather than depending on the standard verbiage quoted above, you might consider negotiating language similar to the following:

"It is assumed that the rental income information supplied by is accurate. The appraiser assumes no responsibility for independently verifying this information. If the client has any question regarding this information, it is the client's responsibility to seek whatever independent verification is deemed necessary."

The language used in our two suggested conditions cannot be guaranteed to relieve an appraiser of any liability and we are not recommending its usage in any report. However, evidence that negotiated language was discussed with the client and that the client signed off on the clause attesting to his/her receipt and acceptance of the same will certainly benefit the appraiser's case. In addition, it may make the client think twice before filing a lawsuit.

Don't take Limiting Conditions for granted. Don't assume that their presence at the back of a report will protect you from a lawsuit. The appraisers that were sued in the cases mentioned above learned that lesson too late.

Copyright 1991. LIA Administrators and Insurance Services. All rights reserved.