Editor’s Note: The following Q&A about how to report a crooked floor in the face of pressure (from a crooked lender), demonstrates what a powerful tool a good Scope of Work can be in deflecting pressure, limiting liability and producing more professional reports.
Scope of Work Q&A: Deflecting Pressure, Reducing Liability
by David Braun, MAI, SRA
Question: Here’s the situation: I did an appraisal per plans and specifications a few months ago. Today, I get a call from the loan officer to do the 1004D–Final Inspection. The property is a semi-custom, $300,000 home on 3.31 acres. I walk around the exterior and all is fine. I go inside the home and all appears complete, with the exception of the built-in dishwasher not installed. Then I look at the kitchen, living room and hallway floors. Something is not right.
The home rests on a concrete slab foundation and the floor finish in those areas is 12-inch ceramic tiles. The floors and tiles are wavy and not level. It is obvious to the eye. As I walk around the rooms I can even feel the unevenness of the floors. If I were to place a four legged table on the floor, like an end table, it would be wobbly.
In 29 years of appraising, this is the worst floor I’ve seen in a new home. I would estimate that the cost to cure is $10,000–$20,000; to have someone come in, break out the tile, level the concrete floors and re-install new tile in a good workman-like manner.
I conveyed this to the loan officer. He says it all looks fine to him! He says he only needs a 1004D final inspection indicating that the home is complete. He says that I am an appraiser, not a contractor, and that I should not be commenting on the quality of workmanship. The loan officer has the homeowner convinced that it’s only “minor” and that he’s seen worse.
What is my liability and responsibility as an appraiser? Since I am not a contractor, do I have a responsibility to comment on this matter? What is my legal obligation? If it was my home, I would want to know. Wouldn’t you?
My final report will state the facts: “All work has been completed, however, while in the home it was noted that the ceramic tile flooring in the kitchen, living room, and hallway were wavy and uneven. It is recommended that the lender and/or owner get an independent contractor to estimate the cost to cure this condition.” – John Ugrotzi Jr.
Answer: (by David Braun, MAI, SRA)
This situation is a scope of work exercise (SOW), even though USPAP does not require a written SOW for certification of completion (Final). As with an appraisal, it is important in this and any job to understand the specific tasks or objectives that the appraiser is required to do, and who may rely on your opinions and conclusions (to often the appraiser just performs tasks without considering who requires it, and on whose behalf it is being done for) . The completion form 1004D is very clear that the appraiser is making a “…certification of completion for the lender/client to confirm that the requirements or conditions stated in the appraisal report referenced above have been met.”
Assuming you used the new URAR report form for the appraisal: The statement of assumptions and limiting conditions #6 states: “The appraiser has based his or her appraisal report and valuation conclusion for an appraisal that is subject to satisfactory completion, repairs, or alterations on the assumption that the completion, repairs, or alterations of the subject property will be performed in a professional manner.” (The bold is added for emphasis.)
This #6 is a condition of the appraisal that in your opinion has not been met. The problem for this lender is that sound lending requires that the floor be corrected or that the loan to value ratio be based on the value of the property as is, which would require a new appraisal. You should hold to your opinion even if the lender does not agree!
For your consideration I would like to add a few thoughts:
- You are being paid for your personal professional opinion. It is not important that everyone else agrees with you.
- Appraisers should avoid forming opinions or making conclusions on structural issues. Point out if something looks funny but avoid making conclusions and opinions about it. However, quality issues do fall under the jurisdiction of the appraiser.
- In this situation you have no responsibility to the homeowner or buyer. Your final report should be chock full of disclosures that the report is made solely for the use of the lender and that if anyone else has any concerns about the materials or workmanship they should engage someone who is an expert in home construction to investigate the situation (builder, home inspector, structural engineer, architect, etc.).
- If the homeowner or borrower is to be an intended user of the final certification (or disbursement of funds) then do not accept the assignment, as you do not have the skills and training that the other experts listed above have.
The importance of the warnings and disclosures concerning your purpose and who the work is created for and intended to protect cannot be overstated. This is true for all professional jobs that the appraiser performs. For additional information on the topics of SOW and liability management consider the book Appraising in the New Millennium; Due Diligence and Scope of Work and the USL Report Documenter II, the only software product designed to help appraisers document their appraisals in light of USPAP, SOW, and Liability management.
NEW USL Appraisal Report Documenter II Software: (No longer requires Microsoft Excel)
• “The report documenting software provides professionalism in my appraisals and keeps me from worrying about liability issues. I wouldn’t send out an appraisal without it.” – Gregory Beck
Making Scope of Work Work for You: Appraising in the New Millennium: Due Diligence & Scope of Work Second Edition by David Braun, MAI, SRA
• “Absolutely first-rate SCOPE book.” – Leroy Michael Eide, CCIM
• “I compliment you on an exemplary product.” – Red Blumenstock