Purchasing real estate is an investment and, as we all know, all investments carry a certain amount of risk. This is a fact that can be difficult for buyers and sellers to understand. It can be tough for them to swallow if the investment turns sour. There are numerous cases where buyers sue real estate agents and appraisers if they lose money on their investment.
There a few reasons homeowners sue a real estate agent or their appraiser and there are a few pieces of knowledge that may assist in protecting an both from liability.
Inability to pay
America has become very litigious, real estate agents and appraisers are not exempt from law suits. In the event a homeowner struggles to make their mortgage payments and they find they are unable to sell their home for at least their loan balance, they are often inclined to seek legal recourse.
They feel the mortgage is based on the appraisal amount, and in claiming the appraisal was too high they may attempt to sue the appraiser.
The market value does not meet the appraised amount
It is not uncommon for the listing price, based on comps from at least 15 similar properties, to be higher or lower than the appraised amount. Sometime this last-minute realization while under contract is good news for the buyer while being bad news for the seller. Either way, the independent appraisal is what the banks use to ensure they have enough capital to secure the loan and protect their investment.
As all of you know, the market goes up and down and the value of the home can be affected by countless external factors. When the market shifts and a home’s value drops below the appraised amount, a homeowner may feel the appraisal was done incorrectly or fraudulently and sue.
Who is liable? Hint: it’s not the appraiser
Multiple court cases such as Willemsen v. Mitrosilis, have found appraisal companies not liable in lawsuits levied by home buyers. The reasoning is that the homeowner was not the appraiser’s client and was the not intended user of the appraisal. The intended user is listed on the appraisal report, and if the buyer is not listed, they have no legal standing to seek compensation.
Sometimes the homebuyer believes that since they paid for the appraisal, it is theirs, which is not the case. The sole purpose of the appraisal is to assist the lender in determining the value of their collateral, not to set the purchase price of the home.
Real estate agent liability
A real estate agent may be named as party to a lawsuit if it is believed that they omitted information to the buyer, such as correct square footage, known damage to the home, or any underlying issues such as plans for surrounding property, like a highway, flood zone, etc. Realtors are required to disclose certain information if it is known to them and if it affects the value or condition of the home.
If the real estate agent has done his or her due diligence, crossed every “t”, dotted every “i” and verified all the information in the property description and information supplied to the appraiser, lender, escrow company, etc., they should be fine if sued.
Real estate agents are not, however, granted the same exclusion from a law suit the that appraiser and other third parties are, as they were hired by the buyer directly to assist in purchasing a home at a fair price.
If worried about liability, there are many forms of affordable professional liability insurance for real estate agents that can protect you. When it comes to appraisals, there are a lot of resources out there to assist real estate agents. If you have any question don’t hesitate to call us today!
Appraisals and Real Estate Agents’ Liabilities