Sunday, August 21, 2011

Indemnification Clauses - UPDATE

A few days ago Appraiser Active posted about a from NAR President, Ron Phipps, to federal agency heads encouraging the bar of indemnification clauses used by Appraisal Management Companies (AMCs). Brian Davis, from Appraisal Scoop, was kind enough to spread the word, and many others read the letter on the NAR Appraisal Insight blog.

Now, Peter Christensen, from the Appraiser Law blog, has a very informative new post: "What's Wrong with Most Indemnification Clauses in AMC Contractor Agreements?"

Peter echos several points that were expressed as concerns in the NAR letter. For example:

5. The clauses negatively affect the quality of an AMC's appraiser panel. All things being equal, a rational lender should have less interest in retaining an AMC that uses an unreasonable vendor agreement. I believe that unreasonable contract language results in an overall lowering of the quality of an AMC's appraiser panel because, on average, fewer appraisers who are better trained, economically stable, and careful about reading legal verbiage choose to work for AMCs with the worst agreements.

7.  The bottom line.  Perhaps the bottom line is that a $200-$400 appraisal can't and shouldn’t be relied on to guaranty repayment of a $1 million loan if someone later deems the appraisal “faulty.”  Every appraiser performing valuations will have appraisals that can be deemed "faulty."  Good appraisers should be selected and used because they are trusted as competent, reliable and honest and render opinions of value that are on average accurate and reliable and within a range of acceptable errors.  They should not be employed as financial guarantors of value -- unless AMCs or lenders are willing to pay for the price of shifting that risk.
 Head on over to the Appraiser Law blog to read the full post. Spread the word!