Real Estate Appraisers Face Risk Daily
Because of what individual real estate appraisers are tasked with, risks abound for them. Some of the errors and omissions (E&O) risks they face include:
- Incorrect calculation of the value of a property
- Description in appraisal report not matching local zoning classification
- Inaccurate appraisal that causes lenders a loss on their loans or makes buyers unable to get a loan
- Inaccurate measurement of the square footage of a building
- Failure to advise a property buyer of a potential hazard that lowers the property value
- Lack of documentation to substantiate the property value
- Missed appraisal deadlines
Clearly, it's a minefield out there — and that's where real estate E&O insurance comes in.
Real Estate Errors & Omissions in Real Life
How, exactly, can appraisers' errors or omissions land them in court? Here are a few claims scenarios:
The Property Value Is Incorrect
In measuring the square footage of a home, an appraiser unintentionally overvalues the property by $100,000. The lender approves the mortgage based on the appraised value. Years later, the borrower defaults, and the lender discovers that the square footage originally reported was incorrect. The lender sues the appraiser for the difference in value.
The Appraiser Neglects to Include Presence of Nearby Construction in Report
An appraiser fails to mention that a major highway is being built near a commercial property. A year after the sale, the buyer claims that the newly completed construction has significantly reduced the property's value because potential customers no longer have direct access to their location. The buyer sues the appraiser for the difference in property value and loss of business income.
The Property Measurement Is Inaccurate
An appraiser instructs a trainee to prepare an appraisal report on a plot within a neighborhood. The trainee provides an incorrect delineation of the property due to typographical errors in the measurements, which the appraiser overlooks. These inaccurate measurements lead the appraiser to significantly undervalue the property, so the bank denes the buyer's loan, and the property is sold to another party. The seller then offers the buyer a comparable property at a higher price. The buyer sues the appraiser for negligence as well as the difference in sale prices between the two properties.
Here's How Real Estate Appraisers Can Protect Themselves
RPS's real estate E&O program for appraisers provides individual residential and commercial appraisers with E&O insurance to protect against professional liability risks. It's easy to obtain coverage for your clients on RPS's e-commerce platform. All you have to do is answer yes to six questions, and then you can quote, bind and issue a policy online in minutes.
The program is written with an AM Best A++ rated admitted carrier and is offered nationally. Coverage features include:
- Broad definition of professional service
- Free extended reporting period for death, disability or retirement
- Defense costs outside the limits of liability
- Prior acts coverage with proof of continuous coverage
Four limit options are available:
- $300,000/$600,000
- $500,000/$1,000,000
- $1,000,000/$1,000,0000
- $1,000,000/$2,000,000
Several supplemental payments are available, including for subpoena coverage, discrimination coverage, professional reputation protection and drone photography, among others.
Visit the RPS e-commerce portal to obtain quotes and write coverage for your clients.