My appraiser gave details to the seller

Brent Huling · 2022-05-18T14:24:00-07:00

I am in the middle of purchasing a home as a fix and flip rehab loan. The ARV did not come in at value and the lender is asking for $50k more out of my pocket. I wasn't feeling comfortable with the deal and was debating using a finance or appraisal contingency to back out, but with the appraiser telling the seller that the house appraised at value but not the ARV and the specifics, I lost all of my leverage. I had asked the seller to drop the value $50k (The purchase agreement was $50k over asking) which they were contemplating, but now they know this, all bets are off. No reduction of price and they are holding firm on the deal. I had also offered $5k in escrow to walk away because the numbers weren't working, but with this info, they will now not cooperate. I have $75k in escrow on a $1.5M home. There is a breach of confidentiality with the appraiser speaking directly to the sellers and seller's agent as well as professional negligence. Unless I want to walk from this deal and lose $75k in escrow, I now have to follow through on a deal I am not comfortable with due to the negligence of the appraiser. I have never sued anyone in my life, but this leak of information is turning out to be very costly to me. Do I have recourse on this? Based on my research with USPAP, it seems I do have a case here as there are strict rules about sharing appraisal information to anyone but the lender and the buyer. My agent called the appraiser yesterday and mentioned he breached his confidentiality and he said so what. Just doesn't seem to care. The home is in Oregon. Thanks!

Dustin Allen

Real Estate Agent · South Lake Tahoe, CA · Member since 2016 · 681 posts · 644 votes

4y

@Brent Huling

It appears that your appraisal contingency has nothing to do with ARV otherwise you would still have a negotiating tool and an out. That being the case, you would have been committing the fraud by trying to exercise the appraisal contingency when it appraised at value. Also, you would have to show the appraisal to the seller if you were going to walk based on that anyway.

Sounds like you either walk from $75k or pony up another $50k and make it happen.

3 Reply

Rick Albert

Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

4y

A couple of questions:

-The appraiser did two appraisals, one at current value and one at future value, correct? If so, you may be able to cancel because it didn't meet one of appraisal contingencies.

-Do you still have a loan contingency? If so, I would argue you could cancel because they have changed the terms on you, which you don't have to accept.

-What about a due diligence period? This is often very open ended and could use it as a cancellation.

Your agent could argue against the listing agent that you will fight it, which means the Seller can't sell to anyone until it gets resolved.

I'm not an attorney. You can talk to an attorney, I know of one that specializes in mortgages and have worked with him in the past.

Good luck!

1 Reply

Nicole Heasley Beitenman

Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes

4y

I believe there is a board of appraisers you can file a complaint with. Your realtor should know more about that process.

0 Reply

John Teachout

Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes

4y

The appraiser did not create the bad deal. I'm not sure they're culpable.

1 Reply

Patricia Steiner

Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes

4y

What starts out crazy only ends crazier...

The appraiser is engaged by the lender and can only speak with whomever the lender authorizes him to speak with about it. As such, your agent should not be the one who is calling him. He/she has no standing. The appraiser was wrong - so go to the lender and raise hell.

But know this: unless your contract stated that the property must appraise at ARV, then you're wrong. You can't claim it didnt appraise - because it did - and the ARV could be negatively impacted by a whole host of things like possibly it being over-improved for the market.

Should you had chosen to back out of the contract due to valuation, you would have had to provide a copy of the appraisal report to the seller and the seller's agent - and it would have been obvious that it had appraised at value (or contract price). The ARV is on you - not on the seller (unless you wrote that into the contract). You need to be focused on why the ARV isn't there and possible adjust that plan to get where you want to be.

Yes, you were wronged - and you were wrong...just a whole lot of not good here. Move forward with a lawsuit and you'll be running up legal fees for some time and getting nowhere. You're better off filing a complaint with the lender (possibly getting your appriasal fee refunded) and then filing a complaint with the Department of Business and Professional Regulation against the appraiser's license. They'll slap his hand.

Justice is a funny thing...it rarely occurs. Get back to business. You can make this deal work.

11 Reply

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

4y

The house appraised. What were you going to try to do....lie and say it didnt and hope the seller would just believe you without seeing a copy of the appraisal?

Im order to enact your appraisal contingency, you would need to provide a copy of the report as proof it did not appraise.

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Brent Huling

OP

Member since 2020 · 38 posts · 35 votes

4y

Maybe I didn't explain myself well enough. The ARV did not come in, so I asked the sellers to come down $50k in price. They were considering it. The seller and their agent called the appraiser and he gave them the details, costing me potentially $50k in price I might have not had to pay. That is the frustrating part. There is no deceit here or intent to fraud. I did not want to pay $50k more out of pocket to make the deal work. Whether I could get out of the contract or not at this juncture is not the point. The fact that the appraiser gave them the details, that lost all of my leverage and ability to negotiate with the seller. I also believe they would have taken $5k to walk away, but once they knew the appraised value, their tone quickly changed. Is there not a confidentiality responsibility from the appraiser? According to USPAP, there is.

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Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

4y

Quote from @Brent Huling:

Maybe I didn't explain myself well enough. The ARV did not come in, so I asked the sellers to come down $50k in price. They were considering it. The seller and their agent called the appraiser and he gave them the details, costing me potentially $50k in price I might have not had to pay. That is the frustrating part. There is no deceit here or intent to fraud. I did not want to pay $50k more out of pocket to make the deal work. Whether I could get out of the contract or not at this juncture is not the point. The fact that the appraiser gave them the details, that lost all of my leverage and ability to negotiate with the seller. I also believe they would have taken $5k to walk away, but once they knew the appraised value, their tone quickly changed. Is there not a confidentiality responsibility from the appraiser? According to USPAP, there is.

What type of loan was it?

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Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

4y

I'd talk to the appraiser and their supervisor along with the bank. You paid for the appraisal, not the seller.

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Brent Huling

OP

Member since 2020 · 38 posts · 35 votes

4y

Quote from @Russell Brazil:

The house appraised. What were you going to try to do....lie and say it didnt and hope the seller would just believe you without seeing a copy of the appraisal?

Im order to enact your appraisal contingency, you would need to provide a copy of the report as proof it did not appraise.

It is a fix and flip rehab loan. All I am trying to do is figure out if the appraiser broke some laws. He ended up costing me a lot of money giving the appraisal values to the seller and seller agent. It gave me no room to negotiate.

2 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Quote from @Brent Huling:

Quote from @Russell Brazil:

The house appraised. What were you going to try to do....lie and say it didnt and hope the seller would just believe you without seeing a copy of the appraisal?

Im order to enact your appraisal contingency, you would need to provide a copy of the report as proof it did not appraise.

It is a fix and flip rehab loan. All I am trying to do is figure out if the appraiser broke some laws. He ended up costing me a lot of money giving the appraisal values to the seller and seller agent. It gave me no room to negotiate.

50k on a 1.5 mil deal in Oregon should not be a deal breaker.. litigation will eat up much of your 75k you stand to lose..I would want to know if there is a attorneys fee clause if you win and even if you do win.. sometimes the judge just gives you a grand or so.. I still dont understand how you thought you had leverage though without fibbing about the appraisal amount. did the house not appraise for what your in contract for or did it appraise for asking price and you offered 50k over ask ?? there are ways to negotiate those items but you do it up front we do it all the time we say if the property does not appraise buyer will come up with the extra money.

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Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

4y

Quote from @Brent Huling:

Quote from @Russell Brazil:

The house appraised. What were you going to try to do....lie and say it didnt and hope the seller would just believe you without seeing a copy of the appraisal?

Im order to enact your appraisal contingency, you would need to provide a copy of the report as proof it did not appraise.

It is a fix and flip rehab loan. All I am trying to do is figure out if the appraiser broke some laws. He ended up costing me a lot of money giving the appraisal values to the seller and seller agent. It gave me no room to negotiate.

Commercial loan, uspap does not apply. Only applies to government backed loans. The appraiser did nothing wrong.

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Brent Huling

OP

Member since 2020 · 38 posts · 35 votes

4y

Ok, thanks guys. A bit disappointed with the dialogue here. I was simply trying to figure out if the appraiser was in the wrong and violated rules. According to USPAP on a residential product, he clearly violated the rules. I feel a bit attacked here.

1 Reply

Josh C.Pro Member

Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes

4y

@Brent Huling

Being attacked. Lol. We just disagree with you. That’s ok. You said house didn’t appraise. You said house appraised for contract amount. which seems to be 1.5MM. Which is it?

I would think it's hardly the problem of the sellers that you calculated your ARV wrong and they should pay for that mistake. Your contract likely has an appraised contingency, but that would be the as is value and not the future value. Also, you usually would be required to provide that to sellers to prove that anyway. I think a judge would laugh in your face. But that's me.

2 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Quote from @Brent Huling:

Ok, thanks guys. A bit disappointed with the dialogue here. I was simply trying to figure out if the appraiser was in the wrong and violated rules. According to USPAP on a residential product, he clearly violated the rules. I feel a bit attacked here.

Brent, BP as you have noticed there are varying degrees of opinions and bed side manner. But a few of the folks that responded are pretty/very sharp experienced agent/investors @Russell Brazil being one of those.

I think the issue that you maybe missing is your loan is for a HML and even though HML needs state license and NMLS registration in Oregon to do 1 to 4 units regardless of owner occ or not the loans when they are not owner occ are commercial and the rules are different for those not nearly as punitive etc.. I think what your probably reading is loan transactions with government backed loans like owner occ where the rules are much different besides the license . And a 1.5 mil purchase price flip at least in the PDX market thats a top end home in this area for sure.. My thought was there should be significant equity in it so the 50k would not be a deal breaker if it is maybe it was too skinny to start with. Cost to service that large of a HML are going to be pretty big assuming your loan is in the million dollar range.. so holding costs alone during the flip could exceed 100k.

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Brad S.

Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes

4y

so, since nobody seems to be able to address your actual question, I'll take a stab at it.

Simply - Yes, it sounds like they violated USPAP, although, you aren't clear on what exactly the "details" the Appraiser offered are. Contrary to a previous post, it does not have to do with the type of loan, it has to do with the Appraiser. If the Appraiser is Licensed and is performing Appraisal Services, then he is bound by USPAP, period!

Ok, now, the Lender is typically the Appraiser's client, no matter who pays for the appraisal. So, without specific authorization, the Appraiser would not even be able to speak with you (Borrower) about the opinions or any assignment results (final value estimate, etc). They could only discuss certain facts (gla, etc), but it is not customary to even do that with a seller or seller's agent, to any great extent. I mean, I have on occasion told the seller and seller's agent the gla I calculated, if there was some anomaly or something, but that's about it.

I see a couple issues though:

1) proving/documenting that the Appraiser did indeed violate confidentiality. Having a detailed list of what they specifically said and to whom and the evidence to prove that. I suggest trying to get that in an email or recorded phone call. Someone can email the Appraiser and see if he responds with some of the pertinent details, or with a phone call.

2) proving actual damages. Sounds like you are only speculating that the Sellers might've dropped the price, and that the "confidential details," divulged to the seller's side, undermined your negotiation. I guess a judge would have to decide that, based on any evidence you present.

I would contact a real estate attorney well versed with appraisal issues and see what their opinion is. If you are able to gather concrete evidence and sufficiently demonstrate your "damaged," then the Appraiser's E & O insurance policy may pay out. But, luckily, in my 25 years of appraising, I don't have any experience with those type of lawsuits (or any) against me or my work.

And yes, you could also file a complaint with whichever governing body oversees Appraisers in OR.

Hope this helps and please let me know if anything comes out of it. Good luck!

6 Reply

Henry Zhu

Rockville, MD · Member since 2020 · 17 posts · 16 votes

4y

@Josh C.

Your comment does not help the man…

He obviously is not having a good day and is losing 50k due to his own mistake.. That’s why he came here just to confirm if he had a case that’s all…

If you are losing 50k and in addition to give you the fact you are wrong I laugh in your face, I guess you would be alright lol…

3 Reply

Joseph BeilkeBusiness Member

Real Estate Agent · Palm Coast, FL · Member since 2018 · 364 posts · 244 votes

4y

@Brent Huling

I would look a two or more possible options, here are my thoughts, evaluate them concurrently.

We talk all the time about how do we as Realtors ad value to our customers to justify one of us over another. I had a dilemma once where I walked from a flip because I didn't have a crystal ball. Funny thing is I don't think any of us do. So we have to learn from our history. Notice I didn't say mistake, because it was not one at the time. I would look at the numbers again and look at past deals good and bad, see what you can do to make up the "value". You might have to eat it up front, but in the end you could score a jackpot.

I agree the Appraiser should not have spoke with the sellers. But like many say here, you would have had to provide it anyway to the sellers to use this perceived leverage. I am not in the room with you and who ever else you discussed this with, but my guess is that you have shown all your cards and you are stuck. I would work with your Realtor to come up with a strategy that is a win win for both of you. Also, don't forget you still have some leverage, you just need to figure out what the seller needs, do some digging, try to see his cards. You might get lucky and have something the seller needs. Look outside the box.

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Mike HurneyPro Member

Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes

4y

@Brent Huling

Hey Brent,

Trouble I find w/BP is all the "experts" giving out "expert advice:-(

I believe your standard? Contract to Purchase has two Contingencies: Inspection and Financing. and the Financing change should provide your out.

Once I get to Legal Contract issues, which I believe this is? I have my Attorney handle the issues, even reviewing my Contract to Purchase and Purchase & Sales Agreement (Mass law). I use the same Attorney for all my closings because we're on the "same page".

(I know "experts" will say, "Who needs an Attorney for a Closing?") Well I do and if I ask an Attorney to get into it and they haven't been involved in the process it's big bucks!

Good luck Brent! Ya, I don't think the $50k is a deal breaker unless you're not getting something in return. (Think the SeeSaw!)

2 Reply

Brent Huling

OP

Member since 2020 · 38 posts · 35 votes

4y

Thanks for the replies @Mike Hurney, @Jay Hinrichs, @Brad S., and @Joseph Beilke for the thoughtful and professional replies. I don't get some of you in here with your responses - it goes far beyond disagreeing or offering help. I laugh at your face? Thanks @Henry Zhu - super helpful. This obviously struck a nerve with some of you which was not intended. Just to reiterate the facts, house appraised at value, did not appraise at ARV. I am not wrong and did not make a mistake. In fact, my mortgage company ran their own numbers, believes me and is willing to do an appraisal holdback and send a new appraiser out there on their dime to ensure we get the ARV value.

My main question was in regards to the appraiser. Not a fun guy to work with and has spoken to my agent, the seller, and the seller's agent. My mortgage company has already started an investigation and the appraiser has admitted to doing this, as well as the seller's agent confirming. That seems very out of line and did not help the situation. I was asking for specifics on appraiser rules and ethics and some of you have been very helpful, so thank you.

The house is a good deal, undervalued most likely, and already has an STR license that will rent for $1k+ per night, so I will be just fine. Doing a fix and flip loan and converting to a refi. Worst case scenario, I purchase as a straight refi and start renting immediately, or I rehab the house and sell with about a $250k profit. My goal was to renovate the house before I start renting it and I may have to put that off. I was looking details regarding a rogue appraiser. That is all.

3 Reply

Adeva Edobor

Banker · Huntington Beach, CA · Member since 2018 · 99 posts · 100 votes

4y

@Brent Huling ARV is not a concrete value until after the repair. You should always allow the numbers on ARV to be flexible. Also, values can go up or down within the repair period, or you may get a different appraiser when you go to refi or resell. A 50k variance on a $1.5m should not be a deal breaker otherwise, your margins were too slim from the start. Appraisal is not an exact science sometimes, it's based on the appraiser's mood. So don't get bogged down by just over 3% in ARV. If that's the make it or break it factor in your deal, it may not have been a great deal to begin with. Maybe get a second appraisal, see how that goes

1 Reply

Issac San Miguel

Lender · Austin Texas · Member since 2022 · 319 posts · 156 votes

4y

Quote from @Brent Huling:

Thanks for the replies @Mike Hurney, @Jay Hinrichs, @Brad S., and @Joseph Beilke for the thoughtful and professional replies. I don't get some of you in here with your responses - it goes far beyond disagreeing or offering help. I laugh at your face? Thanks @Henry Zhu - super helpful. This obviously struck a nerve with some of you which was not intended. Just to reiterate the facts, house appraised at value, did not appraise at ARV. I am not wrong and did not make a mistake. In fact, my mortgage company ran their own numbers, believes me and is willing to do an appraisal holdback and send a new appraiser out there on their dime to ensure we get the ARV value.

My main question was in regards to the appraiser. Not a fun guy to work with and has spoken to my agent, the seller, and the seller's agent. My mortgage company has already started an investigation and the appraiser has admitted to doing this, as well as the seller's agent confirming. That seems very out of line and did not help the situation. I was asking for specifics on appraiser rules and ethics and some of you have been very helpful, so thank you.

The house is a good deal, undervalued most likely, and already has an STR license that will rent for $1k+ per night, so I will be just fine. Doing a fix and flip loan and converting to a refi. Worst case scenario, I purchase as a straight refi and start renting immediately, or I rehab the house and sell with about a $250k profit. My goal was to renovate the house before I start renting it and I may have to put that off. I was looking details regarding a rogue appraiser. That is all.

Sometimes the amount of confidence people have behind a keyboard is beyond me.

It sounds like you have some recourse with the appraisal but as many have said it may not be worth the effort.

Kudos to your lender on this - I think they have your back at least.

1 Reply

Darren Byles

Investor · Palm Beach · Member since 2021 · 18 posts · 4 votes

4y

You are already in contract how can he come back with 50k over. Or was this stated in the contract that if appraisal came in low you have to cover remaining?

0 Reply

John Clark

Member since 2018 · 1k+ posts · 1k+ votes

4y

Quote from @Brent Huling:

Maybe I didn't explain myself well enough. The ARV did not come in, so I asked the sellers to come down $50k in price. They were considering it.

------------------------------------------------------

There are two separate issues here. Co-ordinated, but separate.

First: On what basis were you asking them to come down in price? If you said that the ARV didn't pan out, then all the seller was doing was verifying the information that you were giving out. Note that you don't have to use the magic term "ARV" or "after value" or anything else. ANY reference to the idea that the house wouldn't be worth after you finished rehabbing it what you thought it would be worth after rehab means that YOU put the ARV factor in play, and they can try to verify what you said. Now it appears that you want to whine because you were caught in a lie. Did it rise to the level of "deceit" or "intent to [commit] fraud"? Maybe. No one can rule it out on the slim and one-sided facts given.

Second: YOU did not supply the ARV to the appraiser. You may have given him your target and told him what you wanted to do to the house to get there, but the appraiser is the one who determined the ARV based on what you said you wanted to do to the house. The appraiser-generated ARV, however, may very well be non-confidential. I did a brief (5 seconds, literally), Google search and found this about USPAP confidentiality:

"It says “[c]onfidential information [is] information that is either…identified by the client as confidential when providing it to an appraiser and that is not available from any other source; or…classified as confidential or private by applicable law or regulation” (ibid; emphasis added).

Notice confidentiality flows to the client, not to any other party. What does this mean? Assume you measure a house at 1,945 square feet, but the assessor’s office states 1,893 square feet. Assuming your client is the potential lender, not the homeowner, your measurements of the square footage data are not confidential unless the client (the lender) specifically instructed you not to tell anybody about the “new” square footage"

theappraisercoachDOTcom/...

So the seller asked the appraiser what his opinion was as to the ARV -- a figure the appraiser generated. The appraiser gave it. Was the appraiser wrong to give it? Absolutely. Did the appraiser breach a duty, or breach a duty giving rise to an actual tort? Meh, very possibly not.

In any event, stop whining. You have no case in any event until after you either lose the $75k or pay the extra $50k. Figure out which causes you the least loss and go with it. Then sue the appraiser if you are so inclined. I got dollars to doughnuts you could very well lose in court, too.

0 Reply

Lucien Perreault

Investor · Chicago, IL · Member since 2016 · 81 posts · 81 votes

4y

@Brent Huling

Thanks for posting your issue and i hope it works out for you. I learned plenty from this whole thread.

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My appraiser gave details to the seller

My appraiser gave details to the seller

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