Facts: A buyer enters into a purchase agreement for vacant land. The agreement contains contingency provisions enabling the buyer to evaluate surveys and other information about the property to determine its suitability, but does not include an appraisal contingency. The buyer then seeks financing from a lender, who employs an appraiser to determine the property’s adequacy as collateral. The appraiser completes the appraisal, indicating on the report the appraisal is solely intended for use by the lender. The buyer considers the appraisal in their purchase of the property and closes escrow. Later, the buyer discovers an earthquake fault line runs through the property and a portion of the property is soon to be subject to a public roadway, which was not reflected in the value determined by the appraiser.
Claim: The buyer seeks money losses from the appraiser, claiming the appraiser committed negligent misrepresentation since the appraised value did not reflect the fault line or development of a roadway, and the buyer reasonably relied on the appraisal report as per the contingency provisions in the purchase agreement.
Counter claim: The appraiser claims they did not commit negligent misrepresentation since the buyer did not have justifiable reason to rely on the appraisal report as it was only intended to be used by the lender to determine whether the property was adequate collateral and the buyer’s purchase agreement did not contain an appraisal contingency provision.
Holding: A California court of appeals held the appraiser did not commit negligent misrepresentation since the buyer did not have justifiable reason to rely on the appraisal as it was only intended for the lender, not the buyer, and the buyer failed to convey their intention to review an appraisal report when they did not include an appraisal contingency provision in the purchase agreement. [Willemsen v. Mitrosilis (October 14, 2014)_CA4th_]