It is not unusual for a buyer to be confused about the role of an appraiser and to think that, in some sense at least, the appraiser is working for him. After all, in most cases the buyer pays for the appraisal. Moreover, even if the appraisal report is delivered to the lender, a copy (in California, at least) is also given to the buyer. Further, most of the time — not always, though — the bank’s interests and the buyer’s are closely aligned. That is, they both want to know what value an independent expert assigns to the property.
But buyers ought not to assume that an appraiser’s report is intended for the buyer’s reliance. A recently-decided case from California’s Fourth Appellate District is instructive in this regard. (Willemsen v. Mitrosilis, Fourth Appellate District, Sept. 24, 2014)
In February of 2007, Willemsen entered into a contract to purchase 4.83 acres of vacant land in San Bernardino County from Avista Development, LLC. Subsequently, Willemsen sued both his broker, who was a dual agent in the transaction, and also the bank’s appraiser, AppraisalPacific. Willemsen alleged that AppraisalPacific had overstated the value of the property, and that it had “failed to account for either an earthquake fault line running across the property or the loss of land that would be suffered when a local government entity ran a planned road over the property…” He argued that “his reliance on the appraisal was a substantial factor in causing him monetary harm.”
Defendants Andrew Mitrosilis and Kraig Takacs (the AppraisalPacific defendants) entered a motion for summary judgment — essentially a dismissal — on the grounds that (1) Willemsen was not the intended beneficiary of their appraisal; (2) he could not establish that he justifiably relied on the appraisal; and (3) neither they nor the lender intended the appraisal to influence Willemsen’s decision to buy the property.
The trial court granted the motion. The Fourth District Court of Appeal upheld the trial court’s decision.
The Appellate Court noted that the appraisal itself stated: “The function of this appraisal report is to provide Farmers and Merchants Bank with a Summary Appraisal Report.” It further stated, “The intended use of this appraisal is to assist Farmers and Merchants Bank in analyzing a new loan for the subject property.” It went on to say “This report may not be used for any purpose by any person other [than] the party to whom it is addressed without the written consent of the appraiser.”
The appraisal report opined that the purchase price of $1.6 million was under market and that the property value was $1.78 million. Thus, it provided the bank with reason to believe that the property was sufficient collateral. The report did not, however, address the issue of whether the property was appropriate for the use that Willemsen had intended.
In analyzing relevant cases, the Appellate Court quoted from Bily v. Arthur Young & Co. (a case regarding an auditor’s liability) that the “risk of liability to which the supplier [of information] subjects himself … is vitally affected by the number and character of the persons, and particularly the nature and extent of the proposed transaction.”
In the case at hand, the appraisal company took on a risk of liability with respect to giving the bank information as to the value of the property as collateral. The appraisal had nothing to do with whether or not it was suitable for the buyer’s intended use of the property.
If a buyer wants an opinion as to the value of a property and/or of its suitability for one purpose or another, he should hire his own appraiser or other expert; and he should not rely on the appraisal supplied to the bank. That appraisal is not intended for him and he has no cause of action should it turn out to be off base.
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