Those of us who practice real estate litigation are all too familiar with the seemingly endless number of lawsuits seeking to recoup losses from real estate deals gone wrong. One expanding class of cases involves real estate appraisers who are alleged to have mishandled appraisals on the underlying property.
Most commonly, the bank or investor invests in property based, in part, on the value attributed by an appraiser who they hired. Later on, through foreclosure or re-sale, the property is sold for a fraction of the appraised value. So the lender or investor hires another appraiser to do a retrospective (or “review”) appraisal to determine what the value “should have been” when the original appraisal was performed. If the review appraisal determines that the original appraisal significantly overstated the value, the bank or investor sues the original appraiser for damages.
The cases are primarily based on theories of negligence and/or misrepresentation. The underlying principal of the cases, under any theory, is that the appraiser carelessly or recklessly fails to exercise reasonable care in preparing the appraisal resulting in an overstatement of value and damages to the plaintiff. Reasonable care is based on what a reasonable trained appraiser should do in like circumstances.
Specific mistakes that are commonly the subject of appraisal cases include: using bad comparables; making improper adjustments; improperly describing the property or failing to account for material conditions of the property.
Lawsuits regarding appraisers almost always depend on the testimony of experts. In particular, the plaintiff will usually introduce a report prepared by an appraiser who will testify that the appraisal at issue was negligent. It will always be in the best interest of the accused appraiser to have their own responsive expert appraisal. The strength of these expert opinions is often determinative in the case.
Beyond the above, there are other claims and defenses that arise in appraisal cases. For example, plaintiffs will sometimes allege that the appraiser violated a state statute governing appraisal practices or colluded with others involved in the underlying transaction. Defendants will often allege that the plaintiff contributed to the loss by not following their own lending practices or by failing to mitigate damages.
If you are involved in a case dealing with appraiser liability or have been damaged, we are happy to have a free initial consultation to provide our expert perspective.