WEEKLY PRACTICE TIP
BROKER RISK MANAGEMENT
Q: I am confused as to when a Buyer has to disclose the content of their appraisal, or a copy of the appraisal itself, to the Seller. And, if a Seller has an appraisal from a prior failed transaction, does the Seller have to give a copy to the next Buyer? Maybe it is a low appraisal, and the Seller does not want the next Buyer to see it.
A: These are two different questions.
- MUST A SELLER GIVE COPIES OF APPRAISALS FROM PRIOR TRANSACTIONS TO THE NEXT BUYER?
Answer: They should provide copies of appraisals, if available to buyer.
The opinion of value contained in an appraisal is not a “fact,” defect or condition, which must be disclosed to a Buyer. The opinion of value in an appraisal is just that: an opinion of one person based on their subjective evaluation of the property, its age, condition and location, based on the appraiser’s experience, or lack thereof, with this type of property as of a particular date. It is not unusual for there to be two, three or more appraisals, all with wildly different opinions of value.
But, the real issue with appraisals is that they also contain information about the condition or desirability of the property and/or the neighborhood — and all such information must be disclosed to a Buyer.
In one case, an appraisal report received by the Seller commented on a geotechnical report the appraiser had received on another neighboring property, which identified an unstable soils condition in the hill behind that row of homes. That appraisal was not given to the Buyer during escrow. After COE, that Buyer had damage because of the unstable hillside, sued the Seller, and pursuant to a document production containing the Seller’s records, discovered the undisclosed appraisal with that information. The allegation was then made that the Seller had intentionally failed to disclose this negative information.
- MUST A BUYER GIVE THE SELLER A COPY OF THE APPRAISAL?
Answer: Not necessarily.
If a Buyer is cancelling the contract based on an appraisal contingency because the appraisal came in low, the Seller has a legitimate interest in seeing the appraisal to confirm that the appraisal did not in fact, meet the sales price (or other price agreed upon in the purchase agreement as the required appraisal amount), so should be delivered to the Seller.
However, CAR has taken the position that an appraisal report is not a “report” which the Buyer is obligated to give to the Seller based on the provision in the inspection paragraph of the CAR purchase agreement. In CAR RPA paragraph 12D, the reports which a Buyer is obligated to give to the Seller are defined specifically as “Investigation” reports. Appraisals are not included within that definition.
NOTE: Other purchase agreement forms, such as PRDS and SFAR, are not as specific. However, the paragraphs related to property investigations (and the obligation to give copies of those reports to Seller) are in one paragraph. Appraisals are in separate paragraphs and are not referred to as “reports.”
3. PRACTICE TIPS:
1. All appraisal reports in the possession of the Seller, or the Seller’s Broker/Agent from a prior transaction, should be disclosed to the next Buyer, and delivered to Buyer with the other documents being disclosed by Buyer.
2. A Buyer does not have to deliver a copy of an appraisal report to a Seller unless the Buyer is using a low appraisal to cancel a contract pursuant to an appraisal contingency.
3. If the loan is through the FHA or VA and the Amendatory Clause has been added to the Purchase Agreement, and Buyer is cancelling, because of a low appraisal, then the appraisal report must be delivered to Seller.
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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