Allegedly Inflated Appraisal Made Prior to Construction of New Home Cannot Support a Fraudulent Misrepresentation Claim: Court Endorses "Cost Approach" - TN

I think that appraisers will find this case very interesting from a variety of perspectives!    The case went all the way to the Court of Appeals in Nashville, TN and was ultimately decided in favor of the appraiser, but not without some interesting twists and turns along the way.

JOSEPH AND KIMBERLI DAVIS v. PATRICK J. MCGUIGAN, ET AL. (Tenn.Ct.App. September 11, 2008).

One of the key elements in the case was a citation Byrd v. Hall, 847 S.W.2d 208, 215 n.5 (Tenn. 1993).

To sustain a cause of action for fraudulent misrepresentation, the Homeowners must show:

1. the Appraiser made a representation of an existing or past fact;
2. the representation was false when made;
3. the representation was in regard to a material fact;
4. the false representation was made either knowingly or without belief in its truth or recklessly;
5. the Homeowners reasonably relied on the misrepresented material fact; and
6. Homeowners suffered damage as a result of the misrepresentation

Download Davis_v_McGuigan_091108.pdf

"The Appraiser contends that the appraisal is an estimation or opinion, and is not a representation of an existing or past fact. Therefore, the Appraiser argues, an essential element of the Homeowners’ claim for intentional misrepresentation is conclusively negated and summary judgment was proper on this claim. Homeowners argue that the appraisal value was not the opinion of the Appraiser, but rather an opinion he gave which the Appraiser did not have or knew to be false. Although Homeowners’ argument applies to the fourth element for fraudulent misrepresentation, their contention does not change the requirement of the first element - that the defendant make a representation of an existing or past fact. In Tennessee, appraisals are not considered facts, but rather estimates or opinions." Id.

"Further, we note that when the Appraiser conducted the Appraisal, he was appraising a home that had not yet been constructed. The Appraiser used the “cost approach” analysis, and referred to, among other resources, the specifications and building plans provided by the Homeowners. At that point, the Appraiser only had plans for the future Home on which to base his appraisal; he could not verify that the materials planned for in the Home were actually used in the construction or examine the workmanship of the construction. In Tennessee, conjecture or representations concerning future events are not actionable even though they may later prove to be false." Id. (citations omitted).

To read the FULL case . . . click here: Download Davis_v_McGuigan_091108.pdf

Tip of the hat to the Tennessee Construction Law blog for finding and reporting this judgement.