Happy about the sunset of the hated Home Valuation Code of Conduct, appraisers nonetheless have other worries floating around. And while insurance coverage isn’t necessarily one of them, insurance professionals say it might become a problem soon.
Many homeowners, looking to refinance, are shocked to get a new appraisal that is far lower than expected, and blame their previous appraiser for inflating their home’s value. As a result, many providers are raising their professional insurance rates, said John Torvi, spokesman for Newton-based Herbert H. Landy Insurance Agency. Although most lawsuits stem from valuations done before housing prices collapsed, many have been filed more recently.
“The appraiser is the natural target for this, whether or not the appraiser did anything wrong,” Torvi said.
The severity of claims is increasing, claims are more frequent, and the overall errors and omissions insurance market is getting harder, which means prices are going up. The flow of borrowers’ claims has been rising for the past two years, and Torvi said many companies’ rates have gone up by 15 percent to 20 percent.
Peter Christensen, author of the Appraiser Law Blog and general counsel with California-based LIA Administrators and Insurance Services, agreed with the 15 percent to 20 percent figure and added that it’s largely because would-be refinancers are disappointed. But he also said he’s seen homeowners complain against their most recent appraisers, too. They don’t see malfeasance in their previous, higher valuation, he said, so much as they think their current appraisal is unjustly low.
That’s added an extra wave of complaints and claims during the past 18 months in particular, he said, which is contributing to the rise in prices.
“[Appraisers] might not think about their insurance right now, but in the next year they’ll be thinking about it,” Christensen said.
Costly Complaints
Lawsuits are the costlier problem, of course, but appraisers can also face the lesser – but still troublesome – ordeal of facing official complaints made to their state board of licensure. Christensen said complaints against appraisers have gone way up, and that is confirmed locally. The Massachusetts Division of Professional Licensure reported 141 complaints against appraisers through the beginning of this month, compared to 27 for the entirety of 2007. In 2008, after years of single-digit filings, 102 complaints were lodged, and they have numbered in the triple digits since.
Steve Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers (MBREA), said although insurance companies provide legal counsel for state board complaints, some appraisers don’t notify their insurers – possibly because it doesn’t occur to them to do so.
Christensen added that appraisers need to be wary. If an appraiser neglects to inform the insurance company and is later sued, that might cause problems. In a lawsuit, the appraiser will certainly need to file an insurance claim, but some companies deny the claim on the grounds that the appraiser failed to inform them of a state investigation.
Appraisers make sure they know how such complaints might affect their coverage, he said.
Sousa said increased rates are always of some concern, but that he hadn’t heard much concern from MBREA’s members – probably because other matters are occupying their minds.
“My rates have probably gone up, but not significantly,” Sousa said. Of more importance these days is keeping up with day-to-day work, or keeping busy as home sales slump.
“More importantly, it’s been about getting the work done.”
