Appraiser

Real Estate Appraiser Must Answer Negligence Claims

LINDA COADY, ESQ., Andrews Publications Staff Writer
Professional Liability Litigation Reporter

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A California appeals court has revived a homebuyer's negligence and intentional-misrepresentation claims against a real estate appraiser who allegedly appraised a property at below the asking price to induce the sale.

Young v. Bourland, No. B212076, 2010 WL 7120 (Cal. Ct. App., 2d Dist. Div. 4 Jan. 4, 2010).

The 2nd District Court of Appeal found sufficient evidence that because the appraisal was intended specifically for the buyer and not for a lender, a triable issue exists concerning whether the appraisal was meant to induce the sale.

The panel also found triable issues as to whether the buyer justifiably relied on the appraisal after the purchase price was reduced and whether the appraiser falsely represented the condition of the property and its "highest best use."

"Highest best use" is are real estate appraisal term meaning the legally and physically possible use that, at the time of appraisal, is most likely to produce the greatest net return to the land or buildings over a given period.

Plaintiff DeShawn Young expressed interest in buying a property that had a partially demolished single family home on it. He hired defendant Clifford Bourland to appraise the property.

According to the opinion, Bourland's report valued the property at $785,000, indicated no major repairs were needed and said the property was in "average-plus" condition. After Young received the report, property owner Michael Forbes reduced the purchase price from $799,000 to $789,000.

Young bought the property after securing $785,000 in loans.

When Young tried to refinance the property six months later a bank loan officer told him that because of the half-demolished home, the property could be appraised at only half the purchase price. That is, the property would be valued as a vacant lot.

Young sued Bourland in the Los Angeles County Superior Court, alleging negligence and negligent misrepresentation. The trial court granted summary judgment to Bourland, and Young appealed.

The appeals panel reversed, finding fact issues sufficient to preclude summary judgment.

Bourland argued that Young failed to show that the appraisal was created specifically for him.

The panel disagreed, emphasizing that liability may be appropriate where the professional knows with substantial certainty that the plaintiff, or the particular class of people to which the plaintiff belongs, will rely on the representation in the course of a specific transaction.

Evidence in the record suggests that the appraisal was targeted to Young, as his name appears repeatedly on the appraisal report and Bourland's bill for services, which identified Young as "borrower" or "borrower/client," the panel said.

Young is entitled to a trial on his claim that he was induced to buy based on Bourland's report, the appeals court held.

Further, the panel said, Young established a fact question as to whether he justifiably relied on Bourland's appraisal. Young's expert testimony suggested that had the appraisal been accurate (that is, had the property's actual condition been disclosed with photographs) "no lender would have lent any money for a purchase money loan because of the obvious deferred maintenance."

The court noted that Young had testified at deposition that he would not have bought the property had it been appraised at below the purchase price. He also said he told Forbes about his plans to refinance in six months in order to build a new house on the property.

Finally, Young presented evidence of intentional misrepresentation, including Bourland's admission that his report included photographs from a previous appraisal, which did not show the demolished state of the property, the panel said.

Young also presented expert testimony from two other appraisers who said Bourland had misrepresented the "actual highest" and best use of the property, which would determine the amount of loan funding available to Young.

The experts deemed Bourland's appraisal as "useless" because of the "non-typical physical characteristics present in the subject property."

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