"Double Jeopardy" Appraisals the Second Time Around

With the exceptional number of refinance loans this year, many appraisers are being asked to update a prior appraisal or to reappraise a property.

When faced with such a request, some appraisers simply duplicate the information contained in their initial report. Unfortunately, it is quite possible that an error was made the first time around. By not taking the time to verify or double check the information, the appraiser could unknowingly repeat the same error or fail to detect an otherwise easily discoverable mistake.

Here are two examples of claims caused when appraisers did not reexamine data used in the initial reports:

Claim #1

An appraiser received an assignment to appraise a single family residence for refinance purposes. He inspected the property, prepared his report and submitted it to the lender. Less than a year later, the lender requested an update. This time, the appraiser only did a drive-by inspection, found no new sales comparables and simply provided a letter of opinion stating that there had been no change in value.

What the appraiser did not know was that after the original inspection, the house was rented to tenants with a large, rambunctious dog that did extensive damage to the interior. When this damage was discovered at the time of foreclosure, the lender decided to litigate against the appraiser due to the drop in property value. The lender maintains that this decrease is due in large part to the deterioration of the property`s interior condition.

Claim #2

When an appraiser inspected a single family residence for a purchase mortgage in 1989, he unknowingly over estimated the structure`s square footage.

After making certain cosmetic improvements to the property, the owner applied for refinancing in 1991. The same appraiser was asked to evaluate the property. He did not remeasure the square footage, but simply copied over the incorrect figure from his original report.

The owner refinanced a second time in January of 1992. Again, the same person appraised the property and used the same square footage data.

A few months ago, the owner listed the home for sale. Relying on his copies of the three appraisals, the owner represented that the house contained 3,800 square feet. The new buyer recently discovered the correct square footage and is seeking damages against the former owner. In turn, the former owner has indicated that he will seek indemnity from the appraiser due to the appraiser`s square footage misrepresentations.

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While the appraiser`s liability in the above claims might be questionable, each lawsuit will still be expensive to defend. If each appraiser had taken the time to carefully reinspect both the property and the original report, these claims might have been avoided.

Try to treat each appraisal as a brand new assignment--even if it is only an update or a reappraisal. Do not automatically assume that nothing has changed or that everything you did the first time was correct. Verify information you received from outside sources. Recheck all of your computations. Go back and remeasure square footage.

The time it takes to do a thorough review is time well spent if it helps to avoid an errors and omissions claim. Do not take the easy way out to play a game of "DOUBLE JEOPARDY."

Copyright 1992. LIA Administrators and Insurance Services. All rights reserved.