Rain brings reminder of ‘leaky roof’ case
The buckets of rain that fell in many areas of the country this fall had roofers and gutter installers working overtime. Given the active housing market, it also sent a reminder to define and understand the basic responsibilities of two important players in the residential transaction — appraisers and inspectors.
For example, should real estate appraisers really be held accountable if their report does not disclose a leaky roof?
Several years ago, an important case on the issue — Schaaf vs. Highfield — centered on the sale of a home that had a leaky roof. John Schaaf, the buyer, alleged that Paul Olson, an appraiser hired by the U.S. Department of Veterans Affairs, conducted a negligent appraisal of the home that did not reveal the leaky roof to Schaaf.
The trial court held that a VA appraiser owes no duty to a prospective purchaser like Schaaf. The appeals court, however, held that a real estate appraiser owes a “duty of care” to third parties like Schaaf. Olson, though, was not held liable in this case because Schaaf did not rely on Olson’s appraisal when he bought the house.
In addition, Schaaf said he already knew the home needed a new roof before he bought it. According to court papers, Schaaf stated he “offered the lower price because the house was 16 years old and thought the house would need a new roof.”
Just what does this mean to appraisers? Are they expected to be experts in the field of home repairs? Would not a leaky roof be more in line with the responsibilities of a home inspector?
A typical appraisal on a single-family home costs about $400 to $750, more for huge homes with specific amenities like timber, a swimming pool, view or waterfront. An appraisal is an estimate, or opinion, of value the market would bring if the property were offered for sale. The appraisal usually includes comparable sales from other homes in the immediate area.
Appraisals are often confused with a comparative market analysis (CMA). Real estate agents use CMAs to help home sellers determine a realistic asking price. Experienced agents often come very close to an appraisal price with their CMAs, but an appraiser’s report is much more detailed — and is the only valuation report a bank will consider when deciding whether or not to lend the money.
Times have not been easy for appraisers. Fluctuating interest rates and flat appreciation have meant fewer jobs for “outside fee” appraisers. And, with more disgruntled homeowners blaming appraisers for lower valuations, some conventional appraisers have looked elsewhere for income.
Some attorneys who have studied and cited the Schaaf case state that while the court ruled that duty was owed to the third party, the appraiser was let off the hook because Schaaf did not see the report until more than a year later. It also brings up the issue of detrimental reliance — you can’t rely on something to your detriment when you already know about it.
One of the main issues in Schaaf vs. Highfield was the possible exception of liability for an appraiser hired by the VA. Should there be a loophole when the government was involved? And, was duty owed only to the VA or to the veteran/buyer?
According to the court, “when an prospective house purchaser applies to the Veteran’s Administration for a loan guaranty and the Veteran’s Administration hires an appraiser to appraise the house solely because of the prospective house purchaser’s application, the appraiser owes a duty of care to the prospective house purchaser. Federal statutes and regulations do not preempt the appraiser’s common-law duties owed to the purchaser.”
But will any appraiser ever be an expert in leaky roofs?
Tom Kelly, former real estate editor for The Seattle Times, is a syndicated columnist and talk-show host.
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