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On June 30, Fannie Mae sent a letter to its sellers and servicers, containing updates to the company’s appraisal policies in several areas. Announcement SEL-2010-09 revealed many incremental changes to the appraisal process, including the selection of appraisers, the requirement of interior photos when an interior inspection is conducted, communication under the Home Valuation Code of Conduct (HVCC) and the proper determination of comparable sales, particularly in the 1004MC.

The changes came, according to the letter, after Fannie Mae’s post-purchase reviews of mortgage loan files “identified issues with appraisals.” As a result, several changes and clarifications were made to the appraisal process at the mortgage giant, including:

Inclusion of interior photographs in the appraisal report;
• Lender changes to the appraised value and guidance on addressing appraisal deficiencies;
• Appraiser selection criteria;
• Sources of comparable market data;
• Selection of comparable sales;
• Communication under the HVCC;
• Seller concessions;
• Treatment of personal property; and
• Market Conditions Addendum to the Appraisal Report (Form 1004MC).

One of the biggest announcements is Fannie’s new position in the selection of appraisers. It said that lenders must ensure that appraisers have the “requisite knowledge” to perform an appraisal for the specific area and property. “The use of an appraiser who has the appropriate knowledge of specific geographical markets, access to the appropriate data sources, and experience in appraising specific property types within those markets will help to ensure that valuations are accurate and that appraisal practices are appropriate.”

Although USPAP allows an appraiser who doesn’t have that specific skill-set to accept an assignment on the proviso that he or she will be able to access that knowledge, usually by partnering with an appraiser local to that area, Fannie Mae does not want this to occur and so does not allow the USPAP guideline to apply.

Most importantly, lenders are reminded that they are responsible for the appraisal, regardless of hiring a thirdparty vendor such as an appraisal management company (AMC). “Lenders are ultimately responsible for representations and warranties related to the value, condition and marketability of the subject property; and lenders must hold the AMC responsible for complying with Fannie Mae’s requirements,” the letter stated.

The Appraisal Institute welcomed the announcement from Fannie Mae, saying it was part of a wider effort within the industry to “promote appraiser independence and help loans get completed.” Appraisal Institute Government Relations Committee Chair Richard Maloy said the new requirements may result in lenders rethinking their use of third-party vendors such as appraisal management companies. “The buck now stops at the lender,” he said. “Fannie is saying the lender is held responsible for the appraiser’s selection even if they were selected by an AMC.”

The other important part of the update regards the proper determination of comparable sales. Fannie Mae has updated its section on comparable sales in its selling guide to give guidance to appraisers whose markets are flooded with foreclosures. “If the appraiser believes a foreclosure sale or a short sale is an appropriate comparable, then the appraiser must identify and consider any differences from the subject property, such as the condition of the property and whether any stigma has been associated with it,” the guide states. “The appraiser cannot assume it is equal to the subject property.”

However, Fannie is concerned about lenders changing the appraised value of a property. “During Fannie Mae’s post-purchase reviews, cases were identified where the lender had reduced the opinion of market value in the appraisal report based upon underwriter judgment, automated valuation models, or other methodology,” the letter stated. “Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount.”

If the lender does consider an appraisal to be deficient, it has the following options: it can contact the appraiser to address the problems; it can obtain a desk or field review of the original appraisal; or it can order a new appraisal. There are restrictions though — any desk or field review must be completed according to USPAP, and must be performed by an appraiser who is licensed or certified by the state in which the property is located. Any new appraisal must be based on the same level of inspection that was required for the original appraisal.

Regardless of the options, Fannie Mae does not want lenders to take matters into their own hands. “It is not acceptable for the lender to exercise blanket discretion by arbitrarily changing the opinion of market value from a report for use in the lending process,” the guide forcefully states. “For example, it is not within the lender’s discretion to simply average the two opinions of market value in order to arrive at a final value conclusion.”
Among the other changes in the announcement is a requirement that for any appraisal that involved an interior inspection, photographs of the interior must now be included in the report.

At a minimum, these must include the kitchen, all bathrooms, the main living area, any examples of recent updates such as restoration or remodeling, and any examples, if any, of physical deterioration. The announcement gave guidance on several miscellaneous appraisal-related matters. It reminded lenders and appraisers that communication, while restricted, is still permitted under the HVCC. While the code prohibits the
communication between an appraiser or an AMC and anyone in loan production, or who has a financial interest in the closing of a loan, it does not prohibit other employees of the lender or authorized third party from requesting additional information or clarification from the appraiser.

Appraisers are given guidance on completing the 1004MC, Fannie’s flagship form that was introduced last year. On the form, in order to provide the most accurate depiction of the months of housing supply as of the effective date of the appraisal, the total number of Comparable Active Listings must now be based on a specific point in time. For example, when completing the “Current – 3 Months” column of comparable active listings, the
number should reflect the listings on the most recent date in the three-month period (which is also the effective date of the appraisal), and not the cumulative number of listings for the entire three-month time period.

Then the number for the total number of Comparable Active Listings is divided by the absorption rate, giving an accurate depiction of the existing housing stock as of the effective date of the appraisal. Otherwise, using a cumulative number of listings during the “Current – 3 Month” time period could result in an artificially high number in the housing supply column. If data is available for the previous time periods, then the total number of
Comparable Active Listings should be based on the most recent day in each of those time periods. Although this guidance should be effective immediately, Fannie Mae understands that some appraisers may need to change their technology, so it is not required until Sept. 1, the date when all of the updates in the announcement will be effective.

Regarding seller concessions, the company warns lenders that excessive concessions can artificially inflate the sales price, so appraisals should “reflect an opinion of market value after any special or creative financing or sales concessions have been made.” Fannie Mae also reminds its sellers and servicers that personal property cannot be added as additional security in a mortgage unless otherwise specified.

Freddie Mac has not made any announcements or similar updates to its policies.

Source: Valuation Review

The Herbert H. Landy Insurance Agency, Inc.
75 Second Ave.
Needham, MA 02494
800-336-5422
Visit us, or apply for coverage, at www.landy.com

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Join us at GTAR for an excellent update on today’s real estate appraisal industry followed by a question-answer session.

GUEST SPEAKERS

Francois (Frank) K. Gregoire, IFA, RAA

• Vice Chairman, Nat’l Assoc. of REALTORS’ Appraisal Committee
• Former Chairman of Florida Real Estate Appraisal Board (FREAB)
• Member, FREAB Probable Cause Panel
• Honorary Member of the Appraisal Foundation State Regulator
• Advisory Group
• State-certified Residential Appraiser and Appraisal Instructor
• Licensed in Real Estate since 1976

Joni L. Herndon, SRA

• 2010 Vice-Chair Director, Region X, Appraisal Institute
• 2010 Member, Florida Appraisal Management Company Regulation
• Task Force (appraisal industry group)
• 2008-2009 Chairman, Florida Real Estate Appraisal Board
• 2005 President, West Coast Florida Chapter, Appraisal Institute
• 1985 Started real estate career

WHAT: Real Estate Appraisal Forum

WHEN: Thursday, September 9, 2010, 9:30 a.m. -11:30 a.m.

WHERE: Greater Tampa Assoc. of REALTORS—Auditorium, 2918 W. Kennedy Blvd., Tampa 33609

COST: FREE ADMISSION to GTAR– members

REGISTER at www.GTAR.org

Further information, email Rebecca@gtar.net

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A PDF of this article can be downloaded here.

The target that seems to be on the back of real estate appraisers appears more real than imagined. Indeed, complaints and insurance claims against appraisers alleging an error or omission have steadily risen over the last few years, due in great part to turmoil in the real estate market. As property valuation is often at the center of many of the complaints and insurance claims, real estate appraisers have some justification in feeling that they are in “the line of fire”. Predictably, there are many cases where the appraiser has committed an error or omission (for the purpose of this discussion we will leave out intentional acts of unprofessional or unethical behavior).

In many other cases, however, the appraiser may have committed no error, yet must still respond to the complaint or demand. This is where confusion often develops about if and how to respond and whether an appraiser should notify their errors and omissions insurance carrier.

Letters from regulatory bodies or attorneys cannot be ignored, yet appraisers may be hesitant to respond for a variety of reasons. Perhaps they feel there is no justification in the complaint and it will “go away”. Maybe they are concerned about being sued and losing their license or their errors & omissions insurance, or at the very least seeing their premiums increase. While these concerns are real, a better understanding of real estate appraisers’ errors & omissions insurance and what constitutes a possible claim and the obligation to report it can help an appraiser avoid confusion, or worse.

Errors and Omissions Insurance – An Overview

Most appraisers are covered under an errors & omissions policy, whether they have purchased it on their own or are covered under a firm’s policy. E&O insurance can cover a broad range of actions or inactions relating to an appraiser’s professional obligations and duties, and can be stated in a policy as “any act, error, omission (and in some policies Personal Injury) in the rendering of or failure to render Professional Services”. A policy may go on to state that “the Company shall have the right and duty to defend any suit…even if the allegations of the suit are groundless, false or fraudulent” and that “the Company will pay on behalf of the Named Insured all sums which the Named Insured shall become legally obligated to pay as Damages for Claims”. (It is important to note that insurance policies from different companies may offer different wording, coverage or features, including exclusions from coverage, and this information should be used as an example only).

Errors & Omissions policies also contain important information and definitions of what and who is considered an “Insured”, what is a “Professional Act”, what happens if the policy is terminated and so on. Many policies provide what are called Supplementary Payments for certain expenses or fees related to disciplinary proceedings or regulatory hearings. Supplementary Payments provide payment or reimbursement for expenses in addition to or outside of a “Claim” and the limits of liability for the covered “Claim”. Supplementary Payments can also include payments for loss of earnings if the insured needs to attend a hearing, or protection against discrimination or personal injury accusations.

The distinction of a “Claim” being covered under the policies liability limit, and “Supplementary Payments” being applicable for disciplinary or regulatory proceedings is an important one, as we will note below. An Errors & Omissions insurance policy defines and responds to a regulatory or board complaint or hearing differently then it does for a claim. This does not mean in any way, however, that an appraiser who is notified of a complaint by a regulatory body or official board does not have obligations under their Errors and Omissions insurance policy, or that their insurance might not be impacted.

Important Policy Definitions Every Insured Should Know

Most insurance policies include a major section called “Duties and Cooperation of the Named Insured” and may have sub sections entitled “Duties in the Event of an Act or Circumstance” and “Duties in the Event of a Claim”. These sections can begin to help an appraiser understand how to respond should they receive notice of a complaint, hearing or claim. We can start with the definition of a “Claim”. According to the policy offered by the Herbert H. Landy Insurance Agency through General Star Insurance Company, a Claim means “a demand for money, receipt of a request to provide a recorded statement, the filing of a Suit…claiming Damages and alleging an act, error or omission resulting from the rendering or failure to render Professional Services”. It goes on to state that a Claim does not “include proceedings seeking injunctive or other non-pecuniary relief or administrative proceedings before any national, state, regional or local board”.

So then, a complaint in front of a board is not a claim, and my errors and omissions insurance is there to cover claims, right? So I don’t have to notify the insurance company if I receive a complaint letter because it’s not a claim, right? Wrong!

Remember the “Duties in the Event of an Act or Circumstance” section? It states that if an Insured “becomes aware of any act or circumstance…that may reasonably be anticipated to give rise to a Claim, the Named Insured must notify the Company in writing as soon as practicable”. According to Ted Gaisford, Vice President of Professional Claims at General Star Insurance Company, an “abundance of caution” should be used by any Insured receiving notice of a complaint or becoming aware of circumstances that could lead to such notification. Failure to notify an insurer could jeopardize coverage of the complaint or potential claim. Gaisford indicates there has been a marked increase in appraisers notifying insurers of complaints and hearings over the last couple of years. He further states that 75-80% of these complaints do not result in a formal claim, though payments from the insurer may still be paid under the “Supplementary Payments” section of a policy. With approximately 1 out of 4 complaints resulting in a formal claim, and supplementary payments often being made on the ones that are not formal claims, an appraiser must recognize their obligation to the insurance policy as a legal contract (and this includes properly disclosing information on applications for errors and omissions insurance coverage).

Claims, Liability Limits and Supplementary Payments

When an appraiser purchases an Errors & Omissions insurance policy, one of the most important decisions is choosing the liability limits. Briefly, the liability limit is how much coverage is available should a “Claim” be brought against the insured appraiser. Liability limits are split, and may look like this: $1,000,000/$2,000,000. This means that the insured has $1,000,000 per “Claim”, with an “Aggregate” limit of $2,000,000; the aggregate limit is the total amount of coverage available in a twelve month policy period should there be more than one “Claim” against the insured.

Note the emphasis on “Claims” and the way coverage is afforded for one, as we have already defined a “Claim” as not including “proceedings… before any national, state, regional or local board”. This is where Supplementary Payments” come in – to provide certain monetary payments or reimbursements outside of the liability limits. They can include payments for loss of earnings if an insured must attend a trial or hearing involving a “Claim against the Insured for Covered Damages”. As noted previously, Supplementary Payments may be available if there is no “Claim”, but the insured requires payment for attorney fees and other costs and expenses resulting from the investigation or defense of a proceeding before a licensing or real estate board or governmental regulatory body (note that commission disputes are typically excluded). Unlike the liability limits, there is usually no deductible to be paid by the insured if they receive Supplementary Payments under the policy.

What Do I Do Now?

Most policy holders would know what to do if they received a letter from an attorney, a client or another insurance company requesting damages or notification to collect damages because of an alleged error or omission on the part of the insured. Such notification would be an obvious indication of a “Claim” and the insured would be obligated to follow the notification and procedures as outlined in their policy and their insurance carrier.

What is less clear is what to do if an insured thinks there might be claim, or receives notice of a regulatory complaint. The policy states that the insured must notify the insurance company once they become aware of any “act or circumstance” that may “reasonably be anticipated” to give rise to a “Claim”. As at least one out of four complaints results in a formal claim, it is clear that such a complaint can be reasonably anticipated to give rise to a claim, and an insured must report it. The reporting is also important for an insured to benefit from the Supplementary Payments available through the policy.

With all of this, there still may be some grey areas or confusion about what an appraiser

should do to handle a situation. Appraisers insured with The Herbert H. Landy Agency through General Star Insurance Company have the benefit of a free and confidential legal hotline to consult with real estate lawyers familiar with claim, regulatory and policy issues for appraisers. Sometimes, the attorney might recommend a course of action that may help the appraiser avoid a claim or complaint and notifying the insurer, but if notification is suggested or required, the appraiser will have a much better understanding of the situation and be better able to work with the insurer’s claim staff to resolve the problem. With some policies, an appraiser may have the right to choose their own attorney to address a regulatory or board complaint. Mr. Gaisford from General Star suggests letting the insurer choose the attorney, however. The insurance company’s attorney may be much more experienced in resolving such matters, and can be instrumental in helping to avoid a civil complaint against an appraiser as well.

Recent Claim Trends

The majority of insurance claims against real estate appraisers are based on allegations of erroneous property valuations, and the huge increase in foreclosures has put property appraisals front and center. Many claims are still being filed over appraisals done three or four years ago when property values were at a peak. A common scenario is a home that was purchased with a mortgage made on the property and later the buyer defaults on the loan. The lender then goes back to the appraiser for damages, stating that the appraisal value was too high. A variation of this is the buyer, after buying at the top of the market, tries to sell after prices have softened and cannot regain their investment and sues the appraiser for the original “over valuation”.

More recently, the valuation-related claims show a new characteristic: instead of claims being made for an over-valued appraisal, many current claims allege the property was undervalued. Appraisals done in the recent past during the current market are showing much lower valuations and claims are being made against these “low” value appraisals as homeowners have difficulty refinancing or obtaining equity loans. An even more recent concern is a “strategic foreclosure” – a property owner calculating the financial benefit of walking away from an underwater property, as opposed to using a short sale or traditional foreclosure. As strategic foreclosures become a calculated financial move for some property owners, the effects on claims against appraisers for valuations on those properties could be substantial.

Summary

An Errors & Omissions policy purchased by a real estate appraiser can provide significant piece of mind as the appraiser performs his or her professional duties, but that policy can also appear confusing, especially if an insured receives a legal notice or letter alleging an error. Understanding the definitions and features of the policy will provide an advantage to any insured appraiser in responding properly to any complaint or claim and in working with their insurance carrier to maximize the protection afforded under the policy.

The terms, definitions and examples of insurance coverage are used here for demonstration only. Insurance policies and coverage can vary widely amongst insurance companies and you should consult an insurance professional and your policy for more information.

John Torvi is the Director of Marketing & Sales at the Herbert H. Landy Insurance Agency in Needham, MA. He has been in the insurance business for over 20 years, focusing on the insurance needs of business owners and professionals. He frequently contributes to professional and insurance publications and speaks to industry groups on insurance and risk-management issues. John holds a Bachelors Degree form Providence College and a Masters Degree from Springfield College.

The Herbert H. Landy Insurance Agency, founded in 1949, is a national leader in providing Errors & Omissions and Professional Liability Insurance to Real Estate Appraisers, Real Estate Agents and many other professionals.

John Torvi can be reached at johnt@landy.com or at 781-292-5417. Visit us at www.landy.com.

A PDF of this article can be downloaded here.

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Thank you to all of our friends and clients, as well as REALTOR association partners, who visited theLandy Agency booth at the National Association of Realtors Mid Year Conference in Washington, DC last week. We appreciate your support! We also look forward to assisting all the many Real Estate agents & brokers who are considering choosing the Herbert H. Landy Insurance Agency for their Errors & Omissions insurance

Pictured are Kathy Exson, Second Vice President at GenStar, and John Torvi, Director of Marketing & Sales at Landy.

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As of 06/01/10, there will be changes to some of the applications and rates for our Real Estate Appraisers program. Updated Real Estate Appraiser applications for E&O Insurance are now available on our website, www.landy.com. The following states are affected by the new applications and new rates:

• Arizona
• Hawaii
• Montana
• Nebraska
• New Hampshire
• Rhode Island
• South Dakota
• Texas

These applications are for New Business Submissions only. For copies of Renewal Applications, please contact our office at 800-336-5422.

If you are an agent, please go to our Partner Resource Center for updated applications.

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Risk Management and avoiding claims are as integral to maintaining a sound, professional and successful appraisal business as developing a diverse client base and referral system, and producing accurate appraisals in a timely manner.  One of the basic tenets of risk management and avoiding claims is having a basis understanding of the conduct and context within which services rendered result in claims against appraisers.  Cervantes famous quote, states a basic premise in avoiding future trouble, and containing risk -  “Forewarned, forearmed; to be prepared is half the victory.”  Being aware of the source, and type of claims typically filed against appraisers allows one to implement practices to avoid the dissatisfaction so often at the heart of a claim.

A review of the statistics and data available on claims being filed against appraisers with enforcement agencies on a sampling of these websites reveal the sources and  types of claims being filed against appraisers was consistent throughout the jurisdictions sampled.  A compilation from public sources of the complaints being filed, source of those complaints and types of appraisals involved are set forth in the following table.

Typical complaints are filed against appraisers by clients, homeowners, lenders, state and federal regulators and other appraisers.  Typical allegations include violations of USPAP, technical errors, inaccurate value conclusions, fraud, failure to provide services as contracted and inappropriate conduct related to an appraisal assignment.  Violations also included land attributes misrepresented for larger or complex parcels, out buildings not addressed and a failure to analyze leased fee attributes of sales comparables which properly relate to the subject property.

The statistics demonstrate that the majority of claims arise out of dissatisfaction by a homeowner, lender, mortgage broker or other person or entity authorized to rely on appraisals, who perceived a failure on behalf of the appraiser to comply with the minimum standards as set forth at USPAP, as well as errors in one direction suggesting a lack of objectivity or impartiality.  Statistically, it is not the technically challenging, unique projects which trigger the highest percentage of claims, rather it is the failure to comply with basic standards, lack of attention to detail, a failure to identify information sources and not maintaining an awareness of the intended use and intended user results in a majority of claims.  The constructive guidance to be drawn from this review is that avoiding claims can be accomplished by sound appraiser practice, and does not require any fundamental, time consuming change in means and methods.

A second basic tenet in avoiding claims is to adhere to established practices and procedures in the preparation of every assignment, which serves to ensure the client receives the service they expect.  A non exhaustive list of these practices include:

1.         Adhere to sound appraisal practice

2.         Always comply with USPAP

3.         Practice due diligence

4.         Be cognizant of physical defects

5.         Practice technical and geographic competency

6.         Properly use extraordinary assumptions and hypothetical conditions

7.         When in doubt, disclose

8.         Practice effective record keeping

9.         Incorporate the tenants of the conduct section of ethics which include:

a.         objectivity

b.         impartiality

c.         independence

10.       Avoid Advocacy

Subsequent articles will expand on these principles.  Generally, implementing these practices starts with identifying both the intended user, and intended use.  This will directly impact the scope of work and define objectivity for that assignment.  For each appraisal, appraisal review and appraisal consulting assignment, an appraiser must identify the problem to be solved, determine and perform the scope of work necessary to develop credible assignment results and disclose the scope of work in the report.  Furthermore, always identify the characteristics that are relevant to the type of definition of value and intended use of the appraisal which include its location, physical, legal and economic attributes.  The failure to identify these types of characteristics often are a result of lack of focus on due diligence, basic competency and failure to identify an accurate scope of work.

An appraiser must identify any extraordinary assumption necessary in the assignment cognizant that one must have a reasonable basis for an extraordinary assumption and its inclusion must result in an incredible analysis.  One must also identify any hypothetical conditions necessary in the assignment, which again must also result in a credible analysis and comply with USPAP disclosure requirements.

Where required by the assignment, identify and analyze the effect on use and value of existing land use regulations.  As related to zoning, an incorrect analysis renders an appraisal a claim waiting to be filed, and also represents significant potential exposure to the appraiser.  Where general plans and market trends are not developed, an incorrect analysis may result in an unsupported highest and best use and therefore a misleading report.

In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results.   It is also important to analyze (and not merely disclose) all agreements of sale, options and listings, including all sales of the subject property,  because an omission of key data can also be a basis for an ethics violation.

As a  final consideration, it is fundamental to the practice that an appraiser must perform assignments with impartiality, objectivity and without accommodation of personal interest.   Be aware that errors in one direction raise a red flag and may be viewed by enforcement as evidence of a lack of  impartiality, objectivity or independence in an assignment, and may rise to the level of a violation of the conduct section of the ethics code.  An appraiser’s lack of objectivity may also include pre-determined values due to client pressure, misrepresentation of relevant property characteristics, failure to disclose sales and listing history and intentional misrepresentation of sales comparables.

Avoiding claims is a function of being aware of what triggers claims, forewarned; forearmed, and using practices and procedures in completing assignments which actively include steps designed to minimize the chance that any of the claim triggers occur.  Adhere to USPAP, remain aware of the source and nature of claims typically filed, and you will be well on your way to enjoying a claims free practice.

* * *

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Happy New Year from The Herbert H. Landy Insurance Agency, Inc.!

The first order of business for the new year is changes to some of the applications and rates for our Real Estate Appraisers program. Updated Real Estate Appraiser applications for E&O Insurance are now available on our website, www.landy.com. The following states are affected by the new applications and new rates:

• Delaware
• Kentucky
• Michigan
• New Jersey
• Virginia
• Wyoming

These applications are for New Business Submissions only. For copies of Renewal Applications, please contact our office at 800-336-5422.

If you are an agent, please go to our Partner Resource Center for updated applications.

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The many consequences from the current economic downturn have impacted all aspects of the real estate profession. Real Estate Appraisers have not escaped this and are experiencing significant changes in how they conduct business. New (and constantly evolving) regulations from the FHA, HVCC guidelines and the changing relationships with appraisal management companies are forcing Real Estate Appraisers to reevaluate ways to successfully run their businesses. Another important issue impacted by all of this is insurance, and specifically errors and omissions insurance for Appraisers. Significant increases in claims activity have resulted in some insurers dropping this line of coverage altogether. Tighter underwriting guidelines and premium increases from most other insurance companies have made it more difficult for some Appraisers to obtain quality insurance coverage.

While we must acknowledge these realities, the Herbert H. Landy Insurance Agency is pleased to note our continued support of Real Estate Appraisers in Massachusetts and throughout the United States. As we celebrate our 60th year of operation, we have reaffirmed our commitment to providing high quality, cost-effective errors and omissions insurance to Appraisers and all Real Estate professionals. The Herbert H. Landy Insurance Agency is proud to be affiliated with MBREA as its preferred provider of Appraisers’ Errors and Omissions Insurance, and other professional appraiser and real estate associations across the nation. As the National Administrator for an A++ (AM Best) rated carrier, we are able to offer an exceptional combination of coverage options, competitive pricing and a level of experience and service not often matched in the insurance business today. As a family owned and operated business, our sixty years of success is the direct result of a clear focus on customer service and knowledge of both insurance products and the issues that affect our clients in the real world.

Errors and omissions insurance plays a critical role in the business plan for Appraisers. The particular nature of real estate transactions, whereby multiple professionals are involved in the facilitation of the sale, increase the possibility of the Appraiser being brought into a suit for actions of other parties. Importantly, having the right type of policy and understanding what is, and is not, covered is critical. Errors and omissions insurance policies have unique and important features that all policy holders should be aware of. One of the most important is Retroactive (also called Prior Acts) coverage. This feature provides coverage back to a specific date noted on your policy Declarations page. Any appraisals done back to that Retroactive date would be covered under your policy, as long as that policy remains in force. Gaps in coverage could cause the loss of Retroactive coverage, making the Appraiser vulnerable to claims against past appraisals. If you switch coverage to a new insurer, most insurance companies will honor your Retroactive date as long as there is no gap in coverage. Errors and Omissions insurance is a Claims-Made policy, meaning that it is your insurance carrier at the time a claim is made, not at the time of the alleged error that will handle the claim. Appraisers also need to be aware of the definition of an Insured, the definition of Professional Services and any and all Exclusions.

The definition of “who is an insured under the policy” is critical and not as obvious as it seems. A business may be organized as a sole proprietorship, LLC or S-Corporation. It is important to discuss with your insurance representative the details of your business structure and how to properly insure it. If subcontractors are used, are they listed in the definition of who is an Insured? The definition of Professional Services also requires scrutiny. That definition should accurately reflect what services a business performs. If an Appraiser provides services outside of that definition, coverage may not be there. The third key section of the policy is the Exclusions section, which outlines specifically what is not covered under the insurance policy. For example, some policies may exclude commercial real estate appraisals, or claims brought by financial institutions.

The issues noted above clearly require more elaboration beyond the scope of this article. The professionals at the Herbert H Landy Insurance Agency are happy to share their knowledge and expertise to assist you with securing coverage that fits your needs, so take a moment to review your errors and omissions policy with us. We offer coverage for individual Appraisers and for firms of all sizes. We stand by our commitment to the Appraisal industry, our professional affiliations and our clients, and look forward to the next sixty years!

The material presented above is for informational purposes and does not imply or guarantee insurance coverage from The Herbert H. Landy Insurance Agency or any other insurance provider. You should contact a qualified insurance representative to review and discuss specific aspects of any policy coverage and the insurance needs of your business.

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