Happy New Year everyone and sorry my blogging has not been consistent of late. For appraisers, particularly those in the Portland area, last year was an incredibly busy year. Fees for appraisals went up by 50% or more in Portland. This was a shock to home buyers and others looking for appraisal services, but it represented the first raise for appraisers since the 1990s. Finally, fees in Portland are at a place where appraisers can attract fresh talent into an aging industry. Let’s hope that these gains do not disappear in the next real estate slump, leaving appraisers looking for other ways to earn a living.
Speaking of other ways to make a living, many of my blog subscribers know that our company, A Quality Appraisal, LLC maintains a home measurement service, in addition to our appraisal business, that provides square footage estimates independent of an appraisal. Many appraisers also provide similar side services.
This last year was eventful for our home measurement business. Luckily, after a little research and not a claim or problem, we found that most appraiser Errors and Omissions (E&O) insurance providers do not cover appraisers when they are doing a measurement that is not part of the development of an opinion of value.
I was shocked when told this by one of the largest appraiser E&O providers because most appraiser E&O policies claim to protect customary professional services performed in the insured capacity as a real estate appraiser, and that many of the services appraisers can provide do not involve an opinion of value. How much more customary of a service is a measurement when almost all appraisers measure homes on almost every appraisal assignment?
After I pushed back against the E&O provider, a senior underwriter of the company responded that it would come down to the definition of appraiser as described by the insurance policy, and that they would need to decide if the measurement service was “usually and customarily rendered by a real estate appraiser.” The underwriter explained that square footage estimates are not unique to the appraisal industry and non-appraisers can provide them. Coverage would only be triggered if an appraisal report underlies the square footage estimate.
The senior underwriter went on to explain that when a real estate agent or broker asks an appraiser for a measurement, it is because they seek to shift liability to the appraiser. The senior underwriter also said that measurements are considered risky by insurance companies and added that “about 50% of claims presented to our company involve sq. ft. issues.” This was contrary to what I believed was true — that measurements are only a small piece of the appraisal liability and are easily verifiable. I knew if we wanted to keep our measurement customers, we needed to fix this problem.
To solve it, we contacted all companies that we could find in the US that are exclusively measurement businesses and asked where they secure E&O insurance. After chasing down numerous leads and talking to many insurance providers, we found that most home measurement businesses think they are covered through architectural or real estate policies. However, like appraisal E&O policies, when we contacted the insurance companies, we found out that measurement services are not actually covered.
For this reason, we sought legal advice. Thus, A Quality Measurement was split into its own business name and website, separate of A Quality Appraisal, LLC. After committing many dollars and countless hours, we believe that we have resolved our specific insurance and liability problems. We are not offering legal advice here, nor can we provide the plan our attorney put in place specific for our business. I merely suggest that if you are an appraiser doing home measurements, contact your E&O provider first to see if you are covered.
Are you an appraiser who does home measurements? We would love to hear from you.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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Thanks for reading,
Gary F. Kristensen, SRA, IFA, AGA