Author: John C. Carlson, Certified General Real Estate Appraiser: 29 years of appraisal, expert witness and litigation experience. John is an Associate Member of Certified Fraud Examiners and specializes in high value single family homes and commercial and industrial buildings.
I attended the AI "Appraising Special Purpose Properties Seminar" in Norwalk, CA yesterday. One of the speakers was Ms. Lindsay McMenamin, ESQ, an attorney for Gaglione & Dolan. She is a former SRA & now an attorney for this firm who specializes in defending real estate professionals, especially appraisers. One of the firms main clients is Liability Insurance Administrators in Santa Barbara.
McMenamin had some interesting statistics RE: appraiser lawsuits (Fall 2001 thru Feb. 2007):
- 200 lawsuits nationwide, 97 in CA
- 82 of 97 suits in CA involved Residential Appraisers
- In 58 of the suits there was $0 paid out.
- In 12 of suits $10,000 or less was paid
- Largest loss was $65,000 - this involved a Commercial appraiser.
She identified the following 11 problems and ways to protect yourself:
1. Have a "Letter of Agreement" with your clients.
2. Have a Cover Letter in your appraisals.
3. Identify problems encountered in the appraisal process several times throughout the report in many different sections.
4. Specifically identify Intended User & Intended Use of report. Be very careful when providing copies to anyone unless they are one of the Intended Users
5. Try not to do "copy-overs". She noted one appraisal that, as I remember, was a property somewhere in So. California, that had San Francisco area data in it....Big OOPS!!
(Last year I opposed an appraiser in a trial where the Date of Value was in 2004. ALL of the opposing appraiser's market area data was from an appraisal that was completed in the market area, but in.....2006! The appraiser did not provide any data relevant to our 2004 DOV - the Judge did not like this!)
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6. Specifically state that the Cost Approach should not be used for Insurable Value by the lender. She recounted one horror story that resulted in a huge loss when the property burned down & was not adequately insured. Appraiser also did not have many photos of the property. Owner stated property was larger & in better condition that what was represented in the appraisal. The Court believed the Borrower! Take lots and lots of photos of everything. Photos are very cheap to store now & can prove conditions & amenities at the time you view properties!!
7. If you do vacant land appraisals, always meet with someone involved with the transaction on site to have them show you where the property boundaries are. Again a horror story about the wrong property being appraised was noted.
8. If you return a fee for whatever reason, get a written release from the person to whom you returned a fee! The written release should specifically state that the person will not turn around and sue you.
9. Disclose, disclose, disclose, disclose, disclose AND DISCLOSE!!! throughout your report!!!
- What/when did you see?
- What/when did you not see?
- What you couldn't see?
- Who told you what?
- When? Why? Were? & How?
- If you talked to planning/building...ANY city representatives, note who you talked to when you talked to them & what they said.
She noted that many Cities have a "private" file that may or may not be available, depending upon whether you specifically ask if any additional data is available or not. . She also noted that you can get one set of data one day from one person & completely different data from someone else the next day. Again, document who you spoke to & what they said!
10. One appraiser she noted covered her/himself by disclosing that the Borrower refused to provide any data at all regarding a subject property. Turned out the Borrower was a felon who was in prison!
11. Be very,very,very.very, VERY careful about digital signatures!!
Author: John C. Carlson, Certified General Real Estate Appraiser: 29 years of appraisal, expert witness and litigation experience. John is an Associate Member of Certified Fraud Examiners and specializes in high value single family homes and commercial and industrial buildings. [email protected]
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