Angry borrower wants money back

Q: "I just got off the phone with the borrower on a property I appraised a month or so ago. This guy was looking for a refinance loan and was really upset that my value did not come in higher than what he paid for the property in 2006. I tried to explain to the man that values in the area had gone down, but he did not want to hear what I had to say. He said he had to pay for another appraisal and wanted me to return the fee he paid for my report. He said if I did not pay, he would sue me in small claims court and file a complaint with my state board. I know I did nothing wrong, but I do not want to deal with either of those things. Can I just return the fee and get rid of this guy?"

A: You have a few options. But first let's remember two general concerns that relate to discussions with non-clients such as borrowers: do not discuss confidential matters pertaining to your appraisals with a non-client without the client's authorization and, in any discussion with a non-client, it's good to remind the non-client that your appraisal was for the lender and that your client was the lender. This doesn't mean appraisers should slam the phone down on a borrower calling to complain or not a return a call -- doing that typically causes a borrower's anger and frustration to grow. Be polite and professional while explaining that the lender was your client and limit the discussion accordingly.

As for the specifics of the borrower demanding the fee back and threatening a board complaint or court action if you do not give a refund, the main options are:

(1) You could wait this out and see if this person makes good on his threats. Sometimes an angry borrower will call just to "vent" his anger and frustrations and you may never hear from him again. Of course, the risk of waiting is that he makes good on his threats and then you do have to respond to the board complaint and/or file an answer in small claims court. When upset borrowers have sued appraisers in small claims court to refund fees because they are unhappy with the value, it's our experience that the appraisers often win if they stand their ground professionally in court, explaining that the lender/client was satisfied with the work and explain that when appraisers are doing their job, it means that some opinions of value will be lower than borrowers expect.

(2) If you don't want to take the risk of a board complaint or court action, you might consider offering to return the fee -- however, if you make that personal choice, you should make such a refund, if and only if, the borrower agrees to sign a "Release." In the release he would agree not to make any claims against you arising from the appraisal, in return for getting his refund. If you do something to "buy your peace" - make sure you get what you pay for.

(The above advice is not to suggest that appraisers should simply return fees merely because a party disagrees with the value. Also, we are certainly aware of the management section of the USPAP Ethics Rule which prohibits appraisers from accepting assignments or having compensation arrangements which are contingent upon results, value or other subsequent events. Refunding a fee to avoid a legal dispute after having completed a report is not the same thing. In our experience, the refunding of a fee to a borrower after the fact to avoid a legal dispute or complaint by a borrower has never resulted in a disciplinary complaint or action against one of our insured appraisers.)

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