Hybrid and Desktop Appraisals

Short Answer:  It appears as if no violation of Louisiana law occurs if a real estate licensee — who lacks a real estate appraisal license — engages in data collection for hybrid or desktop appraisals.  However, should the real estate licensee participate in any rendering of an analysis, conclusion or opinion related to the value of the property, the licensee could be said to participating in the appraisal process which requires one to be licensed by the Louisiana Real Estate Appraisal law.

The Louisiana Real Estate Appraisers Law provides that no person shall perform an appraisal without the appropriate state license.  The statute further provides, however, that “[n]othing in this Chapter shall preclude a licensed real estate broker or salesperson from performing a broker price opinion/comparative market analysis in the ordinary course of the practice of real estate, provided that the broker or salesperson does not represent himself as being a state licensed real estate appraiser. ” 

It is no surprise that the statutory regime omits any reference to hybrid or desktop appraisals, as these are relatively new methods of appraising. However, the statute is very clear on what is and is not permitted by non-licensees: appraisals must be done by a licensed real estate appraiser, and all other activities are impliedly permissible. 

An “appraisal” is statutorily defined as “means an analysis, opinion, or conclusion relating to the nature, quality, value, or utility of specified interests in, or aspects, including energy efficiency, of, identified real estate, for or in expectation of compensation. ” 

Mere data collection certainly falls short of this definition because the hybrid or desktop data collector, who may in fact be an appraiser, will turn over the data collected to the actual appraiser for the property, who then completes the valuation on the property, and as such it is the author’s opinion that such data collection may occur without violating the Louisiana Real Estate Appraisal Law. If the data collector also participates in any rendering of an analysis, conclusion or opinion related to the value of the property, the data collector has participated in the appraisal process and is subject to Louisiana Real Estate Appraisal Law. 

Additionally, there is no provision in the Louisiana Real Estate Law that would prohibit such data collection. Louisiana Real Estate Law regulates “real estate activity,” which is statutorily defined to include any portion of the buy/sell process.  The statute’s definition of 

“real estate activity” focuses on actions taken in an effort to procure a sale of property, and therefore appears to exempt from the definition any data collection that is part of the appraisal process unrelated to active involvement in a buy/sell transaction. To the extent a real estate licensee — who lacks a real estate appraisal license — engages in data collection for hybrid or desktop appraisals, Louisiana law gives rise to no violation. 

Short Answer:  Maybe or maybe not.  If a REALTOR® represents the buyer or seller in a transaction and collects data for the appraisal, he or she should disclose to all parties that he or she is collecting data that will be used in the appraisal.

The potential for a conflict of interest arises when a real estate licensee or REALTOR® engages in data collection on a property that the individual is also assisting in the buy/sell process. A conflict of interest arises when the circumstances are such that the exercise of the requisite professional judgment is undermined.

Neither the Louisiana Real Estate Appraisers Law nor the Louisiana Real Estate License Law provide mandates or guidance on potential conflicts of interest, and therefore seem to permit the licensee to collect data on a property that the licensee will then be involved as a participant in the buy/sell transaction. 

Licensees who are also members of Louisiana REALTORS® must, however, adhere to a higher standard pursuant to the National Association of REALTORS® Code of Ethics (“Ethics Code”). REALTORS® have an obligation to each client, and each client expects that his or her interests will be served as first priority. 

Just as acting a dual agent may present a conflict of interest, participating in the appraisal process as a data collector may run afoul of obligations owed to a buyer or seller of the same property. Any data collector would be strongly advised to disclose to his or her buy/sell client that the agent also participated in the data collection process. 

Ethics Code Standard of Practice 11-1 provides that “[w]hen REALTORS® prepare opinions of real property value or price they must…[disclose] whether the REALTOR® has any conflicts of interest.” As discussed above, the process of data collection is separate from rendering an appraisal on the property, but extreme caution is urged, and the REALTOR® who operates in both roles should err on the side of disclosure. 

Short Answer:  There simply is not enough information or instances available for examination to determine the scope of what liability may exist for a real estate licensee who collects data for an appraisal.  Therefore, to minimize exposure in any potential lawsuit, it is encouraged that a real estate licensee who participates in the data collection for an appraisal make sure the arrangement with the appraiser or appraisal management company includes an indemnity clause or some form of protection for the licensee collecting and providing the data.

Although there do not appear to have been any instances of liability against a data collector being held liable for either breach of information or use of inaccurate information, both do create potential for exposure. 

There is less risk for liability for collecting inaccurate data in a hybrid appraisal because an individual steps foot on and inside of the property. But, in a desktop appraisal, the property never feels the physical touch of any type of inspection related to the appraisal process, and room for fraud and error grows and therefore so does the risk for liability for any real estate licensee who collects data for this type of appraisal. 

For example, desktop appraisals will often involve photographic data collection of the interior of the property. There is always risk that the photographs provided are not accurate and therefore lead to an inaccurate appraisal. In this instance, a real estate licensee who provides the inaccurate data may face liability to the appraiser if the appraisal ends up deficient and a loss is incurred. This would be governed by whatever agreement or contract is in place by and between the real estate licensee data collector and the appraiser or appraisal management company. For example, the relationship between the appraiser and the data collector may be that of an “independent contractor.” An independent contractor is a self-employed person or entity contracted to perform work for—or provide services to—another entity as a nonemployee. These relationships are typically created pursuant to a contract or agreement where the data collector—as the independent contractor—agrees to perform a service (data collection) for the appraiser. The terms of the specific contract may state that the data collector is liable to the appraiser for any incomplete or inaccurate work. 

Likewise, there is the possibility that data is leaked and consumer information is exposed. Fortunately, there the law does not provide that a licensee is automatically liable if this occurs. But, if sensitive data is leaked and an a loss, such as theft or disruption occurs, the person whose data was leaked may sue any party involved in the appraisal.  Depending on the circumstances of the case, this could result in a court requiring any party involved in the appraisal, including the real estate licensee who collected the data, to pay monetary damages to the person who suffered a loss because of the leak.

Therefore, to minimize exposure in any potential lawsuit whether it be for providing inaccurate data or a leak, it is encouraged that a real estate licensee who participates in data collection for an appraisal make sure the arrangement with the appraiser or appraisal management company include an indemnity clause or some form of protection for the licensee collecting and providing the data for the appraisal.