The Best of the Legal Hotline: Everything Appraisal


 Tracy Rucka  |    March 05, 2015
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The buyer included an appraisal contingency in the offer to purchase, and the property was appraised for the transaction. Prior to closing, the seller is demanding to see the appraisal report. Does the seller have any right to see the appraisal or know the appraised amount?

The appraisal in a purchase transaction is often ordered by the lender, who is the appraiser’s client. Although the buyer has the right to have a copy of the appraisal, that right does not extend to the seller. The seller would have to order his own appraisal if he wanted to have an appraisal for his purposes. The only time the seller has a right to see an appraisal — and therefore know the appraisal amount — is if the buyer is giving notice under the appraisal contingency to terminate the offer because the property was appraised at a price below the purchase price. 

The contingency in lines 264-271 of the WB-11 Residential Offer to Purchase reads in part, “This contingency shall be deemed satisfied unless Buyer, within ____ days of acceptance, delivers to Seller a copy of the appraisal report which indicates that the appraised value is not equal to or greater than the agreed upon purchase price, accompanied by a written notice of termination.”

Therefore, if the property appraised at the purchase price (or greater), or if the property appraised below the purchase price but the buyer does not wish to terminate the transaction under the appraisal contingency, then the seller does not have the right to a copy of the appraisal. 

An appraiser contacted a broker and asked for a copy of the offer on the subject property. Can the broker provide the offer to the appraiser?

The general rule of real estate licensees is to maintain confidentiality, including the terms and conditions of the offer to purchase. Moreover, given the Distribution of Information section of the offer to purchase, the parties grant the broker the authority to share what would otherwise be confidential information. The WB-11 Residential Offer to Purchase lines 272-277 Distribution of Information states, “Buyer and Seller authorize the agents of Buyer and Seller to: (i) distribute copies of the Offer to Buyer's lender, appraisers, title insurance companies and any other settlement service providers for the transaction as defined by the Real Estate Settlement Procedures Act (RESPA).” For more information, see page 13 of the November 2011 Legal Update, “WB-11 Residential Offer to Purchase — 2010 Edition,” at www.wra.org/LU0911

An agent listed for sale a unit in a condominium development and is concerned that the appraiser failed to recognize significant upgrades and improvements in the unit not found in others in the development. The broker heard about rules that prohibit a broker from contacting an appraiser. What can be done when there have been some obvious mathematical miscalculations in the appraisal report?

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Truth in Lending Act (TILA), USPAP, and other federal guidelines all address appraiser/agent communications. None strictly prohibit appraisers from speaking with real estate agents during the appraisal process. Agents may talk with appraisers and provide additional property information, neighborhood information and comparables. An agent may not, however, intimidate or bribe an appraiser and should provide suggestions respectfully. 

The federal regulations under Dodd-Frank provide the rules designed to ensure appraisal independence do not prevent a real estate broker from asking the appraiser to:

  1. Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal.
  2. Provide further detail, substantiation or explanation for the appraiser’s value conclusion.
  3. Correct errors in the appraisal report.

Once an appraisal assignment is completed and sent to the client, USPAP prohibits an appraiser from discussing the results of the report to anyone but the client who ordered the appraisal or parties designated by the client. In order to ask an appraiser to correct errors in the appraisal report, an agent must use the client, typically the lender, as an intermediary. The client may choose to provide additional data to the appraiser for consideration. The language from USPAP’s Ethics Rule is as follows:

“An appraiser must not disclose 1) confidential information; or 2) assignment [appraisal] results to anyone other than:

  • the client;
  • persons specifically authorized by the client;
  • state appraiser regulatory agencies;
  • third parties as may be authorized by due process of law; or
  • a duly authorized professional peer review committee except when such disclosure to a committee would violate applicable law or regulation.”

For more information about appraiser communication, see NAR’s Appraiser Independence resources at www.realtor.org/appraisal/appraiser-independence and “Professionalism in the Appraiser World,” in the March 2013 Wisconsin Real Estate Magazine at www.wra.org/WREM/Mar13/AppraiserEthics

The Reg. Z appraiser independence requirements found in 12 CFR § 226.42 pertain to all consumer credit transactions secured by the consumer's principal dwelling. See these requirements online at www.gpo.gov/fdsys/pkg/FR-2010-10-28/pdf/2010-26671.pdf.

Can an appraiser give a licensed real estate agent a referral for a listing and be paid? Is there a statutory citation?

A referral fee would be workable only if the appraiser also holds a real estate license. Wis. Stat. § 452.19 permits a real estate broker to pay referral fees and finder’s fees to other Wisconsin real estate licensees as long as that person's license is active, regardless of the fact that the person holds a salesperson's license rather than a broker's license. Real estate licensees cannot pay referral fees to non-real estate licensees. More information about referral fees is available on pages 1-4 of Legal Update 02.01, “Getting Paid Outside of the MLS,” online at www.wra.org/LU0201.

A licensee provides both brokerage and appraisal services. What are the obligations under USPAP when preparing a broker's price opinion (BPO)? 

Many states' brokerage and appraiser licensing laws have specific provisions for appraisers who are also real estate brokers. In the absence of such laws, USPAP provides flexibility for brokers/appraisers and others who have multiple professional roles. If providing the service as an agent or broker, USPAP requires only that an appraiser must not misrepresent his or her role. In others words, if the individual was contacted by his client because he is an agent or broker and signing his report as an agent or broker, then he need not comply with USPAP except to not misrepresent his role. If the individual is contacted by the client because he is known as an appraiser and is signing his report as an appraiser, then USPAP applies. An agent/appraiser may act as a real estate agent in preparing BPOs, provided he makes it clear to the lender or client that he is providing that service in the capacity of a real estate agent.

As a member of the REALTOR® association, any broker preparing a BPO would need to comply with Article 11 of the Code of Ethics and Standard of Practice 11-1, which provides:

“When REALTORS® prepare opinions of real property value or price they must:

  1. be knowledgeable about the type of property being valued,
  2. have access to the information and resources necessary to formulate an accurate opinion, and
  3. be familiar with the area where the subject property is located unless lack of any of these is disclosed to the party requesting the opinion in advance.

When an opinion of value or price is prepared other than in pursuit of a listing or to assist a potential purchaser in formulating a purchase offer, the opinion shall include the following unless the party requesting the opinion requires a specific type of report or different data set:

  1. identification of the subject property
  2. date prepared
  3. defined value or price
  4. limiting conditions, including statements of purpose(s) and intended user(s)
  5. any present or contemplated interest, including the possibility of representing the seller/landlord or buyers/tenants
  6. basis for the opinion, including applicable market data
  7. if the opinion is not an appraisal, a statement to that effect
  8. disclosure of whether and when a physical inspection of the property's exterior was conducted
  9. disclosure of whether and when a physical inspection of the property's interior was conducted
  10. disclosure of whether the REALTOR® has any conflicts of interest (Amended 1/14)”

Tracy Rucka is Director of Professional Standards and Practices for the WRA.

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