Flood zone notification – Part 3 – The Appraiser

When a person or entity is in the business of providing information to another for that person's benefit, the provider of information has a duty to exercise ordinary care in ensuring that the information provided is truthful and accurate. According to the Iowa Court of Appeals, "[i]t is generally recognized that persons who supply information, in the course of their business or profession, for the guidance of others in their business, have a duty to use reasonable care in obtaining and communicating the information." Greatbatch v. Metropolitan Federal Bank, 534 N.W.2d 115, 117 (Iowa Ct. App. 1995); citing Restatement (Second) of Torts section 552 (1977). This includes real estate appraisers conducting appraisals of residential property prior to the closing of a purchase.

Anytime a residential real estate appraisal is conducted, the appraiser is required to determine whether or not any part of the property is located within a FEMA special flood hazard area. This is obviously taken into consideration by the appraiser in coming to a fair market value assessment of the property. Often times appraisers will use computer software to assist in the search but like any software these programs are only as reliable as the person using and directing them.

When a breach of the appraisers duty is discovered, they will often times attempt to fall back on a claim that the home buyer is not their client and thus, they owe no duty to accurately report this data to the home buyer. This argument however is misplaced because all residential real estate appraisals are forwarded to the home buyer for their review and the appraisal must be in range with the purchase price for closing to take place. In the event that the property is located within a flood zone, this would naturally be noted in the appraisal report and/or reflected in the final appraised value. Additionally, The Iowa Supreme Court has held that the purchaser of residential property is justified in relying on an appraisal ordered by the lender for the purpose of completing the sale. According to the Supreme Court: "Even though the appraisal might be made primarily for the benefit of the lending institution, the appraisal should also reasonably expect the home purchaser, who pays for the appraisal and to whom the results are reported (an who has access to the written report on request), will rely on the appraisal to reaffirm his or her belief the home is worth the price he or she offered for it. The purchaser of the home should be among those entitled to rely on the accuracy of the report and therefore should be entitled to sue for damages resulting from a negligent report."

In the event that the real estate appraiser does not detect or accurately or timely disclose that the property to be purchased is located within a flood hazard area, they may be liable for a portion of damages incurred by the home buyer. Larsen v. United Federal Savings and Loan Association of Des Moines¸ 300 N.W.2d 281, (Iowa 1981).

Please see following posts for specifics on each required disclosure.
Seller Disclosures Real Estate Appraiser Disclosures Mortgage Lender & Bank Disclosures