Q: My Seller recently lost a sale because the appraisal report was so low. We are now negotiating with a new Buyer and my Seller wants assurances that this Buyer will get a good appraisal report. What can we do, if anything, to influence the Appraiser?
A: There is no legitimate way to assure the Seller that the appraisal report will be “good.” It is illegal in California for anyone with “an interest in a real estate transaction involving an appraisal” (that would necessarily include Sellers, Buyers, Brokers/Agents, and Mortgage Brokers/Loan Officers) from improperly influencing or attempting to improperly influence an Appraiser.
I. ILLEGAL ACTIVITY
California Civil Code Section 1090.5(a) specifies that:
“No person with an interest in a real estate transaction involving an appraisal shall improperly influence or attempt to improperly influence, through coercion, extortion, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan. Prohibited acts include, but not are not limited to the following:
(1) Withholding or threatening to withhold timely payment for an appraiser.
(2) Withholding or threatening to withhold future business for an independent appraiser …
(3) Expressly or impliedly promising future business, promotions, or increased compensation for an independent appraiser.
(4) Condition the request for an appraisal service or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation in an appraisal report, or on a preliminary estimate or opinion requested from an independent appraiser …. “
California law also provides that the compensation paid to an Appraiser cannot be based on the Appraiser’s opinion of value of the Property for any sale, purchase, transfer, financing or development. In other words, the Appraiser’s opinion cannot be influenced by any attempt to increase or decrease the fees paid to the Appraiser.
If a real estate licensee violates this code section, the DRE may suspend or revoke the Salesperson’s or Broker’s license.
II. PERMISSIBLE ACTIVITY
California Civil Code Section 1090.5(b)(1) specifies that the undue influence law does not prohibit a person with an interest in a real estate transaction involving an appraisal from asking an Appraiser to do any of the following acts:
“(A) Consider additional, appropriate property information, including information about comparable properties;
(B) Provide further detail, substantiation, or explanation for the person’s value conclusion
(C) Correct errors in a valuation report.”
It is also permissible under this law to provide the Appraiser with a copy of the Purchase Agreement.
PRACTICE TIPS:
- The best practice for all real estate licensees is to limit their contact with the Appraiser to scheduling the appointment. Real estate licensees should make no effort to influence the Appraiser’s opinion of value.
- If requested by the Appraiser, real estate licensees can provide that Appraiser with a copy of the Purchase Agreement.
- If the Appraisal Report is low and the Buyer or the Seller wants the Appraiser to reconsider the opinion of value, the real estate licensees representing that client may give the Appraiser data from comparable sales and other relevant property information; however, the email transmitting that data should simply state:
“My client has asked that I provide you with the attached data for your consideration.”
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
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