Portland Area Real Estate Appraisal Discussion

Appraisers Doing Home Measurements Should Check Their Insurance
January 4th, 2017 6:53 PM

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.

If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event.  We will do everything possible to assist you.

Thanks for reading,

Gary F. Kristensen, SRA, IFA, AGA

Great post Gary. It's astounding to see a 50% raise, though as you said, if fees have been stagnant since the 1990s, we have to see the raise in context. Way to go on making sure you are covered. I too think it's silly that E&O won't cover measuring. It does seem to be a big part of the appraisal process. Appraisers have developed the skill of measuring homes because it's a big part of the appraisal process. When we think about it, nobody else in a real estate transaction knows how to measure a house or does it besides the appraiser. It's not that agents want to shift liability, but they are seeking accuracy since county records can be frequently incorrect.

Posted by Ryan Lundquist on January 4th, 2017 7:15 PM
Yikes! I had no idea home measurements services were not covered if not part of the appraisal process. But I guess it makes sense if you consider that it does not require a license. An appraisal office can send out anybody or outsource the function entirely without risking their appraisal license.

Posted by Mike Turner on January 4th, 2017 7:15 PM
Thank you Ryan and Mike for your comments. Ryan, I agree, it does not feel like agents are trying to shift liability. It is my feeling from talking to them daily that they do just want to get it right. Our county records in Portland are often all over the place and they just want a third party to give them some clarity. Mike, yikes was my thought too.

Posted by Gary Kristensen on January 5th, 2017 12:45 AM
Gary, thanks so much for the heads up on this service. I'm not shocked about the 50% measurement claims based on the common statement in MLS listings, "Measurements deemed reliable but not warranted by Broker, Agent or Owner." In my market, Assessors don't provide GLA in any form online, not nearly all listings are actually measured by Agents, GLA on listings seems to be rounded even numbered 1500sf or 2200sf, Agents copy or clone previous MLS listings in history back to the 1990s, which are sometimes very wrong. It's not uncommon for GLA on listing to differ from my measurement in 15% or more of cases. By hiring an Appraiser to measure, I don't believe they're trying to shift liability as most locally aren't concerned about liability. So, did you actually find an insurance provider to cover your separate measuring service and purchase insurance? If so, can you share the company you found and approximate annual cost? For such cost to be feasible, there would need to be a significant amount of measurement orders, which you already have. I've spoken with over 12 local top Agents and consensus is they won't pay more than $50 per home for measuring and they already have someone that does this for them at $50 per home. They wouldn't say who "someone" is... It hasn't really been worth pursuing home measuring at only $50 per job in my local market. Thank you so much!

Posted by Bill Cobb on January 5th, 2017 10:07 AM
Bill, Thank you for your take. I'm shocked that someone is doing home measurements in your market for $50 per home. I know that your area is different than Portland, but that is crazy and I'm sure it is not professional. It costs $99 to get someone to come out and change the air filter in a furnace these days in Portland.

Posted by Gary Kristensen on January 5th, 2017 10:17 AM
While we can be sued for anything, you can provide an element of protection by including some verbiage for the user/client. Here is what I include on all my sketch renderings. "All square foot estimates are derived from exterior wall measurements, the standard in the appraisal industry. While stated as accurately as possible to the 1/2 ft., it is approximate. No warranties, expressed or implied, are provided for the data herein, its use, or its interpretation. The appraiser disclaims liability for any loss or damages suffered by any person(s) or entity(ies) whatsoever resulting from the reliance of any information set forth herein, which is incorrect or inaccurate.

Posted by Rey Cano on January 6th, 2017 4:15 PM
Hi Rey, Thank you so much for following my blog and taking the time to post your comment. We have a similar statement that we place on sketches as well along with engagement agreement and supplemental addendum pages. However, I strongly recommend running these kinds of statements past an attorney. When I did, I was shocked about how our wording really exposed us as a business and even exposed my clients who use our measurement services to fill out listing information.

Posted by Gary Kristensen on January 6th, 2017 7:40 PM
So this is kind of frustrating. We are trying to provide a valuable service to those who need it but have opened ourselves up to potential liability. We can't put statement on the sketch because this can also open ourselves up to being sued as well as those we are doing it for. There has to be an answer here somewhere. Is there any type of umbrella policy that would cover sketches? Are we able to have the client sign a statement that they cannot sue us if the square footage is wrong?

Posted by Tom Horn on January 11th, 2017 4:48 PM
Thank you for the comment Tom. I appreciate it. You're correct, this is frustrating. Our solution involves insurance, changing the way we market, careful engagement, a non-appraisal company, disclosures, and a good attorney.

Posted by Gary Kristensen on January 12th, 2017 4:23 PM
I rarely accept measuring assignments because I know the agent is just trying to place the liability on me. I was quoting the same fee for a measuring assignment as I do for a standard appraisal. However, after reading this article I will no longer accept measuring assignments. Thank you.

Posted by Scott Gardner on January 30th, 2017 6:11 PM
Scott, Thank you for joining the discussion. Wow, I'm impressed that you were able to get such high fees for measurements. Let me know if you need anything.

Posted by Gary Kristensen on January 30th, 2017 6:55 PM
Fees for appraisals went up by 50%. I am not sure in this information. Maybe 10%, probably not more.

Posted by Alex on July 17th, 2017 10:55 AM
Home measurements can be very, very tough. But number of people doing that is raising and that is positive.

Posted by Alex on August 27th, 2017 6:12 AM
50% increase on appraisal fees? Crazy but if someone should get more money in a transaction, it is probably the appraiser right?

Posted by W Properties on December 31st, 2017 3:50 PM
Hello. I have been watching Gary's videos with great interest and came across this measuring service post. I too am looking for E&O for a potential new venture, which is doing the field inspection for desktop appraisal services. Unfortunately, my professional E&O has also told me that they do not provide coverage for this, as I am not valuing the property. Can you advise which carrier(s) may cover this service? Thanks so much for your help. Mike Duncan..Indiana Certified Residential Appraiser. 317.660.5581

Posted by Michael Duncan on July 17th, 2018 8:21 AM


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