All savvy brokers know just how important a role relationship building plays in the modern industry. Brokers’ knowledge and ability to navigate the market is crucial in any environment but with uncertainty spreading though the GTA real estate market, clients are leaning on their brokers for expertise and support more than ever. For brokers, building relationships with trusted and reliable appraisers is crucial in today’s market.
Following on from yesterday’s case study, we have another scenario which highlights the challenges faced by appraisers and how they’re likely to act in a complex situation.
A lender, not the party who originally requested the appraisal, calls the appraisers and asks them to send a reliance letter for a property that was appraised six months ago. The property has been recently acquired by a different party and the lender requires the reliance letter for financing.
So, what does the appraiser do?
The Appraisal Institute of Canada suggests that the appraiser decline the issuance of the reliance letter for the following reasons:
- The market conditions have changed since the original report;
- The use of the property in the original report was deemed to not be viable over time, and the new report would have to address an alternative highest and best use;
- It is a different client; and
- It is a different intended user.
Although it may appear that administration fees related to issuing a reliance letter would be the only costs incurred by the appraiser, in reality the original report now carries more claim risk because a number of groups of individuals may have relied on it.
“Consider the time involved in revisiting the file to assess the request, such as the review of the report and the work file, as well as time spent on the phone in relation to the request,” Keith Lancastle, CEO, Appraisal Institute of Canada says.
“Liability risk has a cost that should be reflected in every professional service provided and to the risk associated with the work. If a 15-minute assignment comes back to haunt the appraiser as a liability claim, then the time involved with defending the claim will far outweigh the fee.”