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Real Estate Agents Are Not Liable for Draft Property Appraisals

Updated on June 4, 2015

A Draft Appraisal Does Not Create Liability

Brokers are not liable when real estate buyers rely on bad draft appraisals in deciding to purchase a property, according to a Texas court ruling.

Similar appraisal issues have arisen nationwide, where courts have reached the same kind of conclusions.

In the case of Virginia Oak Venture v. O.D. Fought, Jr., Jane Tang bought an apartment complex on behalf of her company as an investment property. Shortly afterward, a drop in the housing market forced Tang into bankruptcy.

Tang sued her broker, the real estate salesperson, the sellers, the lender and the appraiser whose draft appraisal was used by the lender in granting a loan to Virginia Oak Venture.

Tang accused the broker of grossly misrepresenting potential earnings from the apartment complex and of fraudulently giving the appraiser false information. The appraiser acted wrongfully in relying on the information, the lawsuit said.

The result was that Tang obtained a loan for much more money than the value of the property, eventually driving her to bankruptcy, according to her lawsuit.

The trial court granted a summary judgment for the broker, appraiser and lender. The appellate court affirmed the summary judgment.

The appellate court said the fact the appraisal was clearly labeled as only a draft copy reduced any appearance of wrongdoing by the broker or appraiser. Each page of the appraisal was stamped “Draft” and included a disclaimer saying the borrower should not rely on it “for any purpose in connection with the loan.”

In addition, Tang received a copy of the draft appraisal only after the purchase closed. In other words, she did not personally rely on the appraisal in deciding whether to purchase the apartment complex.

She tried to argue that any review she might give of the appraisal before the purchase was not important because the blame arose from “the lender’s reliance on the appraisal.”

However, the appellate court said that before purchasers could recover damages for faulty appraisals, they must show “actual and justifiable reliance” on false statements.

Tang did not personally rely on the appraisal in deciding to purchase the property, which would make it difficult for her to prove fraud or negligent misrepresentation, the court said. Her idea of “stretching reliance through another party is not supported by law,” the court said.

The case is Virginia Oak Venture, LLC v. O.D. Fought, Jr. et al., 448 S.W.3d 179 (Tex. Ct. App. 2014).

A Real Estate Investor's Loss is Not Someone Else's Lawsuit, Court Says

Real estate investors assume the risk of financial loss when they rely on faulty draft property appraisals.
Real estate investors assume the risk of financial loss when they rely on faulty draft property appraisals.


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