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Include E&O in Appraisal Reports? Just Say No

 by Isaac Peck, Publisher

Plenty of appraisal management companies still require appraisers to attach an E&O declarations page (dec page) to every report. The practice persists because it’s convenient for the AMC, not because it confirms an appraiser is actually covered when a claim hits.

Ultimately this is a business decision. Some clients will absolutely insist on the dec page, and an appraiser may not want to turn down the work. Even so, OREP recommends against the practice when possible, and the claims data is why.

The dec page itself is a one-page summary issued by the insurance carrier. It lists the insured party, policy number, coverage limits, and effective dates, and it’s the standard way an appraiser proves coverage to a client.

The Case Against
The downside starts with liability. When borrowers or attorneys see proof of insurance, they’re more likely to file a claim—you’ve shown them there’s money to chase. The irony is that the policy attached to the report rarely covers them anyway. E&O is claims-made, which means the policy in force when a claim is filed is what applies, not the one bound to a report from three years ago. The appraiser ends up with all of the exposure and none of the protection. Add to that the information leak. The dec page puts the appraiser’s policy number, limits, and carrier contact directly into the hands of the borrower, who was never an intended user of the report and has no business with that information.

When Borrowers Go Directly to the Carrier
Here’s what typically happens. A borrower receives an appraisal during a refinance. Later, the borrower may discover defects in the home, the roof may start leaking, or the borrower simply encounters financial difficulties. The borrower might lose their job or find themselves worried about making their payments. The borrower looks for someone to blame and lands on the appraisal. The bad news: the borrower has the appraiser’s policy number, coverage limits, and carrier contact information sitting in the report. They use it.

Instead of contacting the appraiser or the lender, the borrower emails the carrier directly, claiming the appraisal caused financial harm. The carrier opens a file, assigns personnel, and issues a formal response, even if the complaint has nothing to do with a valuation error. The appraiser now has a recorded claim event on their insurance history.

OREP sees several of these contacts each year: complaints about roof conditions, post-closing value disputes, or other property condition complaints. Most have nothing to do with valuation errors and most resolve after legal counsel sends a denial letter. The hassle is real, but the exposure is modest, and it’s largely avoidable.                 

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AMCs and E&O
AMCs have their reasons for the practice. A dec page inside the report simplifies their compliance file and gives them a single document to produce when an investor audits the assignment. In some cases lenders might prefer it as it might make it easier for them to sell the loan.

The practice doesn’t actually serve AMCs well though. Embedding the dec page in every report drives up borrower contacts to insurance carriers, which means more claim files opened regardless of merit. That translates into higher claims-handling costs and more disputes where the AMC might get pulled in. And the dec page gives borrowers access to insurance information they have no role in seeing—the intended users of an appraisal report are the lender and the AMC, not the consumer who happens to receive a copy.

What to do when an AMC or lender still requests the dec page be placed inside your appraisal report:

1. Offer the E&O once per year and ask the AMC to keep it on file. This usually satisfies compliance needs without embedding the document in every report.
2. Explain that most E&O carriers actively discourage attaching the declarations page because it increases claim activity, an outcome that benefits neither side.
   
3. Document the AMC’s request in writing so expectations are clear if a dispute arises later.
   
4. If the AMC won’t adjust its policy, weigh whether the assignment volume justifies the added exposure. Only you can make that call.

The safer path is to keep the declarations page on file, not in the report. That said, including it isn’t a catastrophic mistake. An appraiser facing a borrower who is genuinely determined to bring a claim will generally find themselves in litigation regardless of what’s in the report. What the dec page does is lower the barrier slightly for the opportunistic complainant: the borrower who didn’t get the loan terms they hoped for and goes looking for someone to blame. It modestly increases the chance of nuisance contacts to your carrier and modestly increases overall claim activity. Whether that tradeoff is worth the convenience it offers your clients is a business decision only you can make.

Time will tell.                       

About the Author
Isaac Peck is the Publisher of Working RE magazine and the President of OREP Insurance, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of CE at no charge for OREP Members (CE not approved in IL or AK). Visit OREP.org to learn more. Reach Isaac at isaac@orep.org or (888) 347-5273. CA License #4116465.