The facts
Mr. Wallace, a newly licensed appraiser, was hired to appraise a residential home that was still under construction. Mr. Wallace only had experience as an assistant appraiser in which his manager reviewed his appraisals for accuracy. Convinced that he was an accomplished residential appraiser, Mr. Wallace agreed to appraise the property. He completed the appraisal of the unfinished home and released the appraisal to his client. The appraisal was completed under the name of the company that Mr. Wallace worked for, but without his manager's knowledge or review.
Although the property was still under construction, Mr. Wallace provided an appraisal of what the value of the property would have been if it had been completed. His appraisal also contained inaccuracies such as the square footage of the house and the number of bedrooms.
After completing the appraisal, Mr. Wallace and the firm he worked for were sued by the client for providing an inaccurate appraisal of the property. Due to changes in the real estate market, the home's value decreased upon completion.
The result
Mr. Wallace was immediately released from the firm and the case was eventually taken to trial. He admitted that he provided an appraisal of what the value of the house would have been if it was completed. The plaintiff was awarded $30,000. The cost to defend the case was approximately $50,000.
Risk factors
Risk factor #1
Management should be consulted on all assignments prior to consent for work to begin.
Risk factor #2
There wasn’t an accurate method used to appraise the home while it was under construction. An appraiser without residential experience should not appraise an unfinished home.
*The claim scenario is strictly documented for illustrative purposes only and provides an example of what a policy could cover. It is intended to provide a general overview of the program described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to individual underwriting criteria.
