Wednesday, January 13, 2010

The Surest Way for Commercial Appraisers to Be Sued for Negligence

Commercial appraisers are more likely than residential appraisers to be in the position of considering whether to sue a client for unpaid appraisal fees because their fees for a single engagement are higher, sometimes $10,000 or more. Residential appraisers, however, occasionally also face the decision when unpaid fees have accumulated with a single client. When it's only a single unpaid residential fee, most residential appraisers seem to let it go but never accept another assignment from that party.


The question of whether to sue a client for unpaid fees should be evaluated carefully. Suing a client for unpaid fees often results in a cross-complaint against the appraiser for negligence with regard to the appraisal at issue and possibly other work as well. Basically, if the client (or the client's lawyer) thinks there is mud to throw back at you, the client will start slinging it. We see this regularly.

A typical scenario begins with a commercial appraiser who sues to collect an unpaid fee from a lender for whom he's done several appraisals in the last few years. In the intervening months, the loan went into default. The bank sues right back and files a cross-complaint for negligence claiming that the appraiser overvalued the property and alleging that the bank incurred 50 times more damage than the appraiser's unpaid fee.

We've also seen commercial appraisers who rendered expert witness services have significant unpaid fees at the end of a litigation. When the final bill remains unpaid, the expert witness appraiser sues the client for the fees. The client sues back blaming the appraiser for an unsatisfying result in the litigation. (When your client's already in litigation -- that's a client who is more predisposed to suing you.)

Appraisers aren't the only professionals who suffer from whiplash when trying to collect unpaid fees. The American Bar Association has published statistics showing that about 20% of negligence claims against lawyers are made in cross-complaints when lawyers sue for unpaid legal fees.

I recommend that appraisers realistically assess any plan to sue a client for unpaid fees and carefully consider:
  • Will the time, effort and cost of suing for the fees be worth the possible recovery?
  • Are the fees worth the risk of having the client sue you back for professional negligence?
  • What has happened with the subject property and loan since the appraisal? (If the loan is in default and you sue to collect, your chances of being sued back are probably close to 100%.)
  • Have you reviewed your work file for the appraisal to assess whether there are any potential problems with your work?
  • What's the status of other properties that you appraised for that client?
  • Has the client ever indicated to you any issues with the subject appraisal or other assignments?
  • If the assignment involved litigation, was the client satisfied with the outcome?
All of the above factors should be weighed realistically before heading down to the courthouse to sue your client.

[A complete and updated version of this article is available to LIA insureds and READI members at readimember.org.  READI is the Real Estate Advisors Defense Institute, created by LIA to protect appraisers, advocate on their behalf and provide straightforward information about the legal issues that affect them.  You can read more about READI at readimember.org.]