Just when you think the heat in the kitchen can’t get any hotter for appraisers, some new quirk or angle seems to pop up that puts the appraiser at even greater risk for being sued by someone, somewhere, who feels they have been damaged financially as a result of your work.
Some of the lawsuits are legitimate, some are frivolous, some are both. But all must be dealt with and defended. Your E&O insurance policy becomes no longer just a piece of paper that you thought you needed “to get on a client’s approved list,” but an invaluable tool in defending your reputation and your livelihood.
Appraisal Buzz talked with Kate Ginder, Program Manager at Intercorp, Inc., a leading provider of Errors and Omissions Insurance for Real Estate Appraisers, about recent trends impacting appraisers’ liability.
BUZZ: What are the key questions appraisers are asking these days when seeking proposals for E&O insurance?
KATE: Price is certainly at the top of everyone’s list these days, but when it comes to insurance, coverage needs to be the #1 concern. Not all E&O policies are the same. Take the exclusions, for example. Some policies exclude coverage for FDIC-related claims, and that is a type of claim that has been surfacing recently following the FDIC takeover of failed banks.
Who is covered under your policy is also of critical importance. You may hire an independent contractor who has his or her own insurance to work for you, and think that you have no liability for their work. Well, their insurance most likely protects them, not you. If you are named in a lawsuit, their policy is not going to defend you or your company.
So we try to explain these important coverage issues to appraisers. Our approach has always been consultative in nature. We believe strongly that insurance is a key to managing risk, not a product that you purchase like a package of pencils at Staples. We strive to make sure that the policy properly addresses the specific exposures of the specific appraiser.
BUZZ: We have heard a lot about the increasing number of claims being filed against appraisers since the real estate market crash. Is this trend continuing?
KATE: That has certainly been the trend in recent years, but we are feeling a bit “cautiously optimistic” that the level of activity has been slowing down somewhat. One area that has heated up, however, is the number of complaints being filed against appraisers with state regulatory boards. Some of these are coming from financial institutions, some are the result of reviews performed for Freddie, Fannie, or FHA, and some are from property owners.
Our E&O policy provides appraisers with a sublimit of up to $5,000 to pay for legal expenses in responding to a board complaint. We recommend that appraisers use this resource, because the expertise and objectivity of a third party in compiling a response or in representation at a hearing is invaluable.
We also have a Pre-Claim Assistance Hotline, where appraisers can get advice on a range of issues. Just last week, one of our appraisers consulted the hotline about a contract she was being asked to sign. “With input from the hotline’s representative, I decided that if the client won’t waive a troublesome provision, I won’t be signing their contract,” she reported back to us.
BUZZ: What other advice do you have for appraisers?
KATE: I like to think of the concept of defensive driving for your business. Just as you do in driving a car, appraisers need to adopt a wide-ranging view of their total environment and then concentrate on steps that keep them out of trouble.
Try auditing your own files, for example. Pull out a half dozen appraisals from three years ago, and review them in depth. If you were asked to defend those appraisals today, could you? Does your file have all of the documentation it needs? (Use a checklist for everything your file should contain.) What would you do differently if you were performing the appraisal today? Have you incorporated those steps into your current operation? If you have multiple appraisers on your staff, make sure you have someone else review your work. If you are a staff of one, put on your “objective” glasses!
And finally, read, study, and learn – stay on top of your game!