Liability for Negligent Appraisals

Have you ever had a Buyer tell you their appraisal was wrong because it did not pick up defects in their house?  Ever wonder what they could do about it?  Well, the Supreme Court of Washington appears to have answered that very question in Schaaf v. Highfield, 127 Wn. 2d 17 (1995).

John Schaaf bought a home in Bremerton for $100,000.  Nine months after he bought it, a rainstorm caused water damage to his basement carpeting.  The water damage grew worse over the following year.  Schaaf then sued the selling agent, the brokers, the brokerage, and the appraiser for the cost of a new roof and the lost value of his home.  The appraiser had been hired by the Veteran’s Administration, which guaranteed the loan.

Schaaf’s claim against everyone but the appraiser was denied at an arbitration hearing.  Only the claim against the appraiser survived.  Schaaf then lost his claim against the appraiser at the trial court level.  He appealed that decision directly to the Supreme Court.

In reviewing the case, the Court posed the following two (paraphrased) questions:

The Court answered Question #1 by saying “yes”.  A third party may state a claim for negligent misrepresentation against a real estate appraiser.  The liability of the appraiser “extends only to those involved in the transaction that triggered the appraisal report, including, but not necessarily limited to the buyer and seller.”  Schaaf at page 27.

The precise definition of this duty (and liability for breaching it) was left up to a trial court to determine, based on the facts of the case.

The Court answered Question #2 by saying “no”, there is no special exception for VA-hired appraisers.  The Court found that the policy reasons for holding appraisers liable for negligent misrepresentation to third parties applied equally to VA-hired appraisers.  Furthermore, there was nothing in federal law or regulations that suggested otherwise.

So what happened to Mr. Schaaf?  Well, he lost.  Even though the Supreme Court said appraisers are liable to third parties like himself, he did not rely on the appraisal in making his decision to purchase the defective house.  In fact, he did not even see the appraisal until a year after he bought the place.

A moral to be drawn from all of this is to make sure your prospective buyers receive a copy of any appraisal before they close the deal.  If they wait until after closing to receive and review it, they may lose any claim they might otherwise have had against an appraiser.  If you are an appraiser, be aware your basis for potential liability has been expanded.  Careful attention to detail, adequate investigation and review of the property, and well-documented appraisals are more important than ever.

Published October 1995

This article contains information of general interest, and is not intended to be, nor should it be relied upon as a substitute for specific legal advice.