Does an Appraiser Owe a Duty of Care to Non-Client Third Parties? It Depends.

Under what circumstances do appraisers owe a duty of care to third parties sufficient to give rise to liability for negligent misrepresentation claims was examined (again) by the Arizona Court of Appeals in late 2012.  See Belen Loan Investors, LLC v. Bradley, 296 P.3d 984, 650 Ariz. Adv. Rep. 8 (App. 2012).  This question has been examined multiple times by the Arizona Court of Appeals over the past few years.  See id.; see also Sage v. Blagg Appraisal Co., 221 Ariz. 33, 209 P.3d 169 (App. 2009); Kuehn v. Stanley, 208 Ariz. 124, 91 P.3d 346 (App. 2004); Hoffman v. Greenberg, 159 Ariz. 377, 767 P.2d 725 (App. 1988).  The short conclusion to this question is simple, yet far from satisfying:  it depends on the specific facts of the case.

Arizona courts primarily rely on Section 552 of the Restatement (Second) of Torts (1977) with respect to an appraiser’s potential duty of care to, and potential exposure to claims from, any non-client third party.  An appraiser’s liability for negligent misrepresentation is limited to loss suffered “by the person or one of a limited group of persons for whose benefit and guidance [the appraiser] intends to supply the information or knows that the recipient intends to supply it” and extends only to those transactions “that he intends the information to influence or knows that the recipient so intends.”  Restatement § 552(2). The appraiser need not know the identity of the third-party recipient at the time he supplies the information, as long as the third party falls within a distinct group or class of persons the appraiser intends to reach and influence with the information.  Restatement § 552 cmt. h. 

Arizona courts have previously applied this standard in the following manner:

(1)       Found that an appraiser owed homebuyer a duty of care because, even though the homebuyer was not the appraiser’s named client, the appraiser knew that homebuyer had right to request a copy of the appraisal report from the lender, that the lender was obligated by law to provide the homebuyer with a copy upon request, and that the homebuyer’s contract entitled her to forego the sale if the appraisal was unfavorable.  Sage. 

(2)       Found that an appraiser owed no duty to the homebuyers due to the type of appraisal the lender requested that the appraiser complete – a “short form” for lending purposes only, which was not prepared for the guidance of the homebuyers.  Kuehn.

(3)       Found that an appraiser hired by the seller of parcels of vacant land owed no duty to the third-party purchaser of the property, due in part because the seller had refused to inform the appraiser how the report was intended to be used, and the report itself stated “the function of the report is to aid our client” and it “may [not] be used for any purpose other than its intended use.”  Hoffman.

Finally, the Belen Loan Investors court overturned an order granting a motion to dismiss for the appraiser, because the court ruled that it was a question of fact whether the appraiser intended to supply his appraisal to plaintiff-lender, or knew if his borrower-client intended to supply them to the plaintiff-lender.

The bottom line:  if an appraiser knows that the appraisal is intended for a third party, or knows his client intends to simply supply the appraisal to a third party, the appraiser likely owes a duty to that third party sufficient to expose the appraiser to liability for a negligent misrepresentation claim.  Conversely, if an appraiser has not been informed that the appraisal is intended for a third party, and makes clear that the appraisal has a limited scope and is intended only for use by his specific client, then likely the appraiser does not owe a duty to the third party, since the third party will be unable to show any justifiable reliance.