Professional Appraisers practice under similar duties and responsibilities imposed by the Appraisal Institute's rules relating to brokers (as adopted virtually verbatim in most states). These standards vary with the type of appraisal requested, proposed hypotheticals, scope of work, legal instructions given, limitations, the purpose of the appraisal, and other factors. However, in situations similar to the ones discussed for Brokers, the AI imposes upon appraisers the duty to become aware of and to consider locational obsolescence.
STANDARDS Rule 1-4 (f) (USPAP)
When analyzing anticipated public or private improvements, located on or off the site, an appraiser must analyze the effect on value, if any, of such anticipated improvements to the extent they are reflected in market actions.
From The Appraisal of Real Estate. The Appraisal Institute, 14th Edition.
(An appraiser is aware of the concept of locational obsolescence.) This is caused by proximity to some detrimental influence on value such as heavy traffic, a landfill or other undesirable influence outside the property being appraised.
Real estate transactions and professional appraisals are highly regulated in every state. Many regulators place an affirmative duty on the seller, the appraiser, and the broker to consider and disclose any condition which could affect the value of the subject property. These conditions can be either on the subject property itself, or they can be existing off-site. Failure to meet this responsibility may result in litigation against the professional. A common standard for determining liability is whether the seller, appraiser, or broker knew or should have known of the condition, even if it is off-site.
The cost-benefit analysis of using Impact Check to discover potential red flags that affect value is compelling. Even the successful defense of a disciplinary action or a lawsuit can be shockingly expensive. Should good errors and omissions coverage absorb the monetary consequences of litigation, there still may be a sharp increase in monthly rates after any lawsuit. The consequences of failing the professional duty to consider both on- and off-site factors that materially affect value can be long-lasting and financially significant.
An inexpensive solution to providing your client with access to a meta-database of potential on- and off-site threats to property value is Impact Check. This service is becoming a routine component of due care in every real estate transaction.
*Note: This communication is not intended to convey any legal opinions or advice. We are not attorneys. The application of the information contained herein varies from State to State, and is not in any way meant to be a substitute for a professional consultation with your own qualified attorney.