Limit of Liability Language
Q: " I have been working with a local lender for several years now and we have had a very good relationship. Each year they send out a new form, the Appraisal Engagement Letter, which has pretty much stayed the same for the past several years and is the basic form sent with every new assignment. It contains all the basic information; the Bank is the Client and Intended User and the Intended Use is to assist with a credit decision. When I receive a new assignment, they include one of these letters, with all the spaces for the property address, agreed fee, and due date filled in, and I am supposed to include a signed copy as part of my final report.
I was just about to put the letter in my file when something caught my eye that has me very concerned. The new form letter says the appraiser agrees that, “the report will not include any limit of liability by the appraiser to the client.”
I have been insured with you for years and have read all your articles. I have a lot of limit of liability language in my reports. I have a section that says the report is not prepared for any third parties and that they can’t rely on it for any reason. I have a section that says the appraisal is not a home inspection and can’t be relied on to disclose condition in the property or defects. I also have language that says the report can’t be used to figure out how much insurance to buy...and it goes on and on. Is this client telling me that I can no longer include any of that language in my appraisal reports? This could be a really big problem for me and for any other appraiser who does work for this bank.
A: First of all, I have to applaud you for taking the time to read this form, and not just assuming the language was what you had seen in past years. I think you might be misinterpreting the lender’s new requirement. I believe the “limit of liability” language they are concerned about applies to an appraiser’s effort to limit liability to the amount of the fee he or she is paid to complete the assignment. Oftentimes, an appraiser will include some language in their report that says their liability for any error, omission, etc. is limited to the fee they were paid for the appraisal. The lender might have received a report that contained this language, or their legal department might have insisted that the new caveat be included in all appraisal engagement letters.
I think you should contact the client and discuss the intent of this language in the engagement letter. I cannot recall the last time anyone reported that a lender/client had any objection to the “limitation of liability” language that you mention you typically include in reports. They understand that this language is added to assist the appraiser if he or she has to defend a claim made by a third party. Most lenders are sympathetic to the appraiser’s concerns and they have no objection to any such additional language. Let me know what the client says when you have a chance to speak with them.
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