Tom Kelly: Appraisers are not building inspectors

Sometimes, you just have to feel for real estate appraisers. They get hammered by salespersons for making out-of-area valuations when they are contracted to do so, draw the ire of sellers for providing outdated comparable property sales and are criticized by buyers for not discovering structural flaws.

They are appraisers, folks, not structural inspectors or engineers.

The subject of appraisers and a structural flaw came up again last week when a friend asked if an appraiser should have known and disclosed appearances of dry rot in a wood-framed carport.

“Not their job,” I said. “They are supposed to give you their best idea of what the property is worth, not what’s wrong with the place.”

My friend then said, “Wasn’t there a court case about the same thing?”

The case definitely added confusion to the role of an appraiser in a residential sale.

In a capsule, the case Schaaf v. Highfield centered on the sale of a home that had a leaky roof. John Schaaf alleged that Paul Olson, an appraiser hired by the Department of Veterans Affairs, conducted a negligent appraisal of the home and did not reveal the leaky roof to Schaaf.

The trial court held that a VA appraiser owes no duty to a prospective purchaser like Schaaf. The appeals court, however, held that a real estate appraiser owes a “duty of care” to third parties like Schaaf. Olson, though, was not held liable in this case because Schaaf did not rely on Olson’s appraisal when he bought the house.

“The court ruled that duty was owed to the third party,” attorney Rob Keefe said at the time of the appeal. “But the appraiser was let off the hook because Schaaf did not see the report until more than a year later.”

In addition, Schaaf said he already knew that the home needed a new roof before he bought it. According to court papers, Schaaf said he “offered the lower price because the house was 16 years old and thought the house would need a new roof.”

“It brings up the idea of detrimental reliance,” Keefe said. “You can’t rely on something to your detriment when you already know about it.”

A typical appraisal on a single-family home costs $450-$700, more for huge homes with specific amenities like timber, swimming pool, view or waterfront. An appraisal is an estimate, or opinion, of value the market would bring if the property were put up for for sale. The appraisal usually includes comparable sales from other homes in the immediate area.

One of the main issues in Schaaf v. Highfield was the possible exception of liability for an appraiser hired by the VA. Should there be a loophole when the government was involved? And, was duty owed only to the VA or to the veteran/buyer?

According to the court opinion in the 1995 case, “when a prospective house purchaser applies to the Veterans Administration for a loan guaranty and the Veterans Administration hires an appraiser to appraise the house solely because of the prospective house purchaser’s application, the appraiser owes a duty of care to the prospective house purchaser. Federal statutes and regulations do not preempt the appraiser’s common-law duties owed to the purchaser.”

But will appraisers also be expected to know about dry rot in wood-framed carports?