Valuation Issues & Answers: Liability of Appraising REOs & Foreclosures

Question: I have been performing a lot of exterior drive-by appraisals for REOs and pre-foreclosure purposes. The intended use is not for any type of financial transaction but for estimating market value purposes only. What is the level of risk for these types of appraisals compared to purchases and refis? Typically these appraisals are for people going into foreclosure and the bank wants to know an estimate of value in order to evaluate offers. Eventually, a new appraisal would have to be done by a different appraiser for the final purchase. Is my liability risk low or high?
– Darrin Henry

Answer: I will answer to the best of my ability and suggest you also contact an attorney if you want a legal analysis. In the sense that these appraisals may not be used for lending purposes, it would seem that they would carry less liability than purchases or refinances. However, remember that a lending institution is making a value decision based on the appraisal. It might be the determining factor in the amount that they sell the property for, or how they deal with an owner who is trying to work out mortgage payment problems. So the appraisal is being used in a financial transaction. Moreover, you cannot be certain that they will not use the appraisal in some loan-related way, even though that is not the stated use.

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