WEEKLY PRACTICE TIP
BROKER RISK MANAGEMENT
Disclosing Appraisals
Q: I am confused as to when a buyer has to disclose the contents 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’s a low appraisal and the seller doesn’t want the next buyer to see it.
A: These are two different questions.
1. MUST A BUYER GIVE THE SELLER A COPY OF THE APPRAISAL?
Basically, 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).
But apart from that, an appraisal is not a “report” which the buyer is obligated to give to the seller based on the provision in the inspection paragraph of the purchase agreement. In CAR RPA paragraph 12.A, 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.”
2. MUST A SELLER GIVE COPIES OF APPRAISALS FROM PRIOR TRANSACTIONS TO THE NEXT 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. 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 may also contain information about the condition or desirability of the property — and all such information must be disclosed to a buyer. In one case, an appraisal received by the seller commented on a geotechnical report which 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 a subpoena for seller’s records discovered the undisclosed appraisal with that damaging information. The allegation was then made that the seller had intentionally failed to disclose this negative information.
PRACTICE TIPS:
1. A buyer does not have to give 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.
2. While an appraisal in the possession of the seller or listing office from a prior transaction need not be disclosed to the next buyer, if such appraisal contains information that affects the value, condition or desirability of the property, then at least that portion of the appraisal must be disclosed in the Attribute and Disclaim format, i.e.:
“Seller/Listing Agent has been informed that the property has the following condition or defect: (Identify the information from the appraisal). Neither seller nor listing agent has verified this information. Buyers should conduct their own investigation of this information.”
See Weekly Practice Tip entitled “Attribute and Disclaim”
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