Q: I am representing a Buyer who is getting a loan from a large lender. I met the appraiser at the Property to provide access. I was rather surprised by what I perceived to be unprofessional behavior and comments. For example, he did not stay very long at the property and I did not see him measure all parts of the residence. When we entered the home, he seemed dismissive of the special features of the residence that I pointed out and commented that he could not believe how high the local prices were despite “the makeup of the neighborhood.”
When we received the appraisal report, the opinion of fair market value was significantly lower than the sales price and the information used by the appraiser was not accurate. The square footage was lower than the City’s data and was significantly lower than what was determined by a prior appraiser. The new appraisal stated that the home is in “poor condition” but there is no visual evidence of that and neither the house inspector nor the pest control inspector reported any negative conditions. The comps that this appraiser used were from another neighborhood that does not have the same local amenities.
When I contacted the appraiser to suggest that he (1) recalculate the square footage figures; (2) reconsider his evaluation of the property condition; and (3) take into consideration some comps that I was willing to provide to him from the area (which I know to be far more current and relevant), he rudely rejected my suggestions and hung up. Is there anything that can be done? What should I advise my client about this appraiser?
A: Yes, there is something that can be done and there are specific recommendations which should be made to your Buyer. There are also new laws regarding what Buyers can do if an Appraiser appears to be biased in violation of the fair housing laws. This week’s Tip will focus on how you should proceed.
I. HANDLING TRADITIONAL COMPLANTS AGAINST APPRAISERS
Appraisers are regulated and governed by the Bureau of Real Estate Appraisers (“BREA”) which is part of the California Department of Consumer Affairs. Under California law and the regulations of the BREA, appraisers can be disciplined if they violate the Ethics rules of the Uniform Standards of Professional Appraisal Practice (“USPAP”), which are developed and interpreted by The Appraisal Standards Board (“ASB”) of The Appraisal Foundation (which was authorized by Congress) on behalf of appraisers, lenders and the public.
If Sellers or Buyers believe that an appraiser has acted in violation of the general Ethics rules, advise your clients that they have the right to file a complaint with the BREA. Encourage your clients to visit the BREA online at: www.brea.ca.gov or they can contact BREA by phone at (916) 552-9000.
A guide for filing a complaint and the investigative process can be found on the BREA website at: http://www2.brea.ca.gov/complaint/
II. NEW LAWS REGARDING BIAS BY APPRAISERS
A. Effective January 1, 2022, California law now prohibits an appraiser from basing their appraisal of the market value of a Property on the race, color, religion, gender, gender expression, age, national origin, disability, marital status, source of income, sexual orientation, familial status, employment status, or military status of either the present or prospective owners or occupants of the Property, or the present owners or occupants of the properties in the vicinity of the Property, or on any other basis prohibited by the federal Fair Housing Act.
B. Effective July 1, 2022, California law will require that every contract for the sale of real property contain a notice stating that any appraisal of the property is required to be unbiased, objective, and not influenced by improper or illegal considerations in violation of the fair housing laws. That notice will include the same information as detailed above in Section I regarding filing a complaint with the BREA. If your client believes that the appraiser was biased, the Buyer should be encouraged to contact the BREA.
The mandatory contract language is not in the new CAR RPA or any of the other CAR contract forms. CAR will be adding the required language by means of a Fair Appraisal Act Addendum (“FAAA”) that will be available in June, 2022. The statutory notice is already in the PRDS REPC (12/2021).
III. BEWARE OF UNDUE INFLUENCE
Civil Code Section 1090.5 prohibits anyone with an interest in a real estate transaction involving a property valuation from improperly influencing or attempting to improperly influence the development, reporting, result, or review of that appraisal through coercion, extortion, bribery, intimidation, compensation, or instruction.
This law applies to real estate licensees. Thus, it is important that when anyone discusses a property valuation with an appraiser that no one exert any type of pressure on the appraiser to change their opinion.
However, California law does not prohibit asking an appraiser to do any of the following:
A. Consider additional, appropriate property information, including information about comparable properties;
B. Provide further detail, substantiation, or explanation for the person’s value conclusion; and/or
C. Correct errors in a valuation report.
See also Weekly Practice Tip: Home Valuation Code of Conduct and California Law on Influencing Appraisers (05/15/2009.
PRACTICE TIPS:
- If there are problems with an appraisal report, consider contacting the appraiser for an explanation. There is nothing illegal or improper in asking an appraiser to consider additional data. Make sure that you document your file as to what additional information you have offered and what errors you have requested be corrected.
- Agents and/or their clients should be careful in any communications with the appraiser so as to avoid any possible claim of undue influence.
- Clients who are dissatisfied with the contents or opinion of value in an appraisal report and believe that the appraiser has acted unethically and/or the appraiser was biased, should be encouraged to file a complaint with the California Bureau of Real Estate Appraisers.
- Effective July 1, 2022, make sure that all purchase agreements include the new Fair Appraisal Act notice; this can be handled in one of two ways: (a) the notice is already in the text of the purchase contract or (b) is on an Addendum added at the time the contract is negotiated.
DO NOT FORWARD TO SELLERS OR BUYERS. 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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