AZAPP Blog

Sage v. Blagg Appraisal Co. (4/30/2009):  Arizona Court of Appeals Division One Holds That an Appraiser Retained by a Lender to Appraise a Home in Connection with the Granting of a Purchase-Money Mortgage May Be Liable to the Prospective Buyer for Failure to Exercise Reasonable Care in Performing the Appraisal.

Plaintiff Shari Sage purchased a home for $605,200.  Her lender retained Defendant Blagg Appraisal Company, Ltd. (“Blagg”) to perform the appraisal on the home.  Blagg never interacted with Sage, and submitted the appraisal only to the lender.  Sage, however, asked the lender to provide her with a copy of the appraisal, which she received prior to closing.  The appraisal stated that the livable area of the home was 2,440 square feet and estimated its value to be $620,000.  A year and a half later, Sage obtained another appraisal stating that the livable area of the home was only 1,871 square feet.  Sage sued Blagg for negligently misrepresenting the value of her home at the time of purchase, claiming that she would not have purchased it had the appraisal been accurate.  Both parties moved for summary judgment as to whether Blagg owed Sage a duty.  The Court granted Blagg’s motion, and Sage timely appealed.

The Arizona Appeals Court reversed and remanded.  Citing the Restatement (Second) of Torts § 522 (1977), and Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 945 P.2d 317 (App. 1997), the Court explained that a professional owes a duty to a plaintiff when it supplies information to a third party for use in a business transaction, the professional knows the third party intends to supply the information for the benefit of a limited group of persons, and the plaintiff is a member of that group.  The Court held that the facts supported an inference that Blagg knew the lender intended to provide the appraisal to Sage because Sage had a right to request the appraisal.  The Court also noted that public policy, the realities of the loan/purchase transaction, and evolving industry standards supported its conclusion that an appraiser owes a duty not only to the lender that contracts for the appraisal, but also the prospective borrower.

The Court rejected Blagg’s argument that this case is governed by Kuehn v. Stanley, 208 Ariz. 124, 91 P.3d 346 (App. 2004), and Hoffman v. Greenberg, 159 Ariz. 377, 767 P.2d 725 (App. 1988), noting that those cases are factually distinguishable.  The Court also rejected Blagg’s argument that it owed no duty because the loan transaction was distinct from the purchase transaction, explaining that the two transactions are closely related.  Additionally, the Court rejected Blagg’s argument that it owed no duty under Restatement § 522 because an appraiser may not know that the lender will supply the appraisal to a purchaser.  The Court explained that the Restatement does not require that an appraiser know that the lender will supply the information, only that it intends to supply the information.

Presiding Judge Johnsen authored the opinion; Judges Winthrop and Norris concurred.