Why Can’t Realtors® and Appraisers Play Nice? The New PRDS Real Estate Purchase Contract and Potential Problems for Appraisers

Eric Hartnett

by Eric Hartnett on September 6, 2011

in Real Estate Law

Our office represents real estate brokers in a variety of different matters, including but not limited to commission disputes and failure to disclose lawsuits.  Our office also represents real estate appraisers in administrative (OREA disciplinary hearing) and litigation (e.g. purported over valuation) matters.  Since we represent and advise both of these real estate professionals, it is a bit disconcerting to see that the most recent Peninsula Regional Data Service (“PRDS”) Real Estate Purchase Contract potentially throws appraisers “under the bus.”

Before continuing on with the main thrust of this article, let us first exam what the PRDS Real Estate Purchase Contract is and how it is developed.  The PRDS Real Estate Purchase Contract is one of several purchase contract forms utilized in the state of California for real estate purchases.  The form most people will see is the California Association of Realtors® (“CAR”) Real Estate Purchase Contract, a form used throughout California.  On the other hand, the PRDS contract is predominantly used on the San Francisco Peninsula between San Francisco and San Jose.

Now that the background of the PRDS contract has been explained, the next step is to understand how it is developed.  The most recent PRDS Real Estate Purchase Contract was drafted in a collaborative effort between real estate attorneys and seasoned Realtors® in the San Francisco Bay Area.  The goal of these authors was to create a unambiguous purchase contract that allows a purchase to run smoothly while limiting the potential liability of the listing and selling brokers.

Unfortunately, in an effort to protect Realtors®, the drafters appear to have given the purchasers of a property a possible angle to sue an appraiser.

If you will recall, my blog article about a borrower’s/buyer’s ability to sue an appraiser indicates that unless the buyer hired his/her own appraiser, the buyer’s ability to sue the appraiser is minimal.  This is because the buyer is not the intended user of the appraisal and the appraiser had no intent to benefit the buyer.   However, the new PRDS Real Estate Purchase Contract includes language that calls into question whether the buyer can immediately be dismissed from consideration as an intended user of the appraisal report.

Specifically, if the appraisal contingency is utilized in the PRDS Real Estate Purchase Contract then the purchase agreement is “contingent upon the Buyer’s obtaining an appraisal of the Property at an amount that is equal to or greater than the Purchase Price…[and] Buyer shall rely on an appraisal report.”  Thus, a buyer might be tempted to sue the lender’s appraiser if the appraiser’s valuation is inaccurate by claiming reasonable reliance on a misrepresentation.  However, the appraisal contingency, in and of itself, does not present a significant hurdle for appraisers as the appraiser will argue that no specific appraisal is identified and that the buyer should have bought their own appraisal report if they wished to rely on it.

The real potential problem presents itself if both the finance and appraisal contingencies are utilized.  If this situation occurs, the PRDS Real Estate Purchase Contract mandates that the “Buyer shall rely solely on the appraisal report obtained by Buyer’s lender.”  Since the appraisal contingency requires that the purchaser obtain an appraisal of the property at an amount equal to or greater than the purchase price, a purchaser may have a claim against the appraiser as an intended user if the appraiser or the appraisal report indicate that the appraiser reviewed the purchase contract and the appraisal report’s estimated value is inaccurate.

If you are a purchaser or an appraiser caught in the crossfire of this new PRDS Real Estate Purchase Contract and want to know what legal rights you have or ways to protect your legal rights, please contact our law firm.  Our team of experienced attorneys are well versed in real estate-related questions and look forward to assisting you with your legal needs.

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{ 2 comments… read them below or add one }

avatar Nelia M. September 7, 2011 at 4:23 pm

Hello Eric
I’ll be recommending your law firm to all my friends. Who have this kind of problem. Hope you can help them.


avatar Berna September 21, 2011 at 4:41 pm

I hope we will not encounter such problem. But just in case ( I hope it won’t) I know were to go. Thanks.

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