Appraiser disclosed appraisal to seller w/out buyer permission

[Steven Granados]

Greetings, long time reader of this forum, have been an investor in RE for several years now, lots of great resources here. Trying to take a step forward in building my network.

A brief of the situation, I went into contract for a property in Texas (I'm located in San Diego, CA) where I already own some income property. After receiving the leases for the duplex, it turned out that the property at the contract price would not be profitable (I use financing for all of my purchases), as it was locked into leases that didn't not terminate until May 2020. Fortunately for me, the property did have a tremendous upside as both sides of the duplex were rented far under market value. I was still interested in the property, just at a value less than the contract price.

I was eager to have an appraisal done, which we knew would be done after the option period. I knew ultimately that the property would not appraise at value as I had already researched comps, which would allow me to get a much better price in renegotiating with the seller, or the contract could be terminated due the low value and earnest money would be returned. Nothing in my strategy is not regularly employed by buyers.

Unfortunately for me, the appraisal came in slightly above value, which seemed odd, and when I investigated closely, of the 7 comps used, there was one outlier that greatly skewed the value. My conjecture is that the appraiser used the property that was not applicable in this deal so to raise the value and "not rock the boat" so to speak. I challenged this appraisal with the lender and appraisal company, and another appraisal was ordered. Later, it came in WAY under the contract price...25 % less, which was already a 12% discount from the listing price. I thought it was only going to appraise about 10-12% less than contract price, but this was way off. 

The seller was beside himself. He was shocked, and as one can surmise from the fact that his original listing price was 35% over what it was appraised at (so seller is probably not being rational about his overpriced property), that he flipped out. He was getting beat up on price, but here is where the story goes sideways:

The listing agent indicated to my agent that the appraiser talked to her on the phone and told her that the property appraised at value back after the first appraisal, in fact, she cited the exact amount that the property appraised at (which was just slightly higher than the contract price). We did not disclose this information, there was no way for that precise piece of information could be had without the appraiser sharing it. We tried our best to get the seller to understand, and the listing agent understood our position that regarding the actual value of the property, and I even offered more ultimately than what the second appraisal indicated. Nothing mattered, the seller was so irate and felt betrayed and swindled, after all, in his mind after the first appraisal (and in his mind, the only appraisal) was done that the deal was going to sail.

I contacted an attorney recommended by my agent, but he has some doubts about my ability to sue for damages. I'm hoping to get some guidance:

1) Do I have a case of professional gross negligence where I can sue for damages? This property would have brought me THOUSANDS each MONTH. The difference in appraisal values was in the hundreds of thousands of dollars...the first appraiser had NO right to disclose MY appraisal which I paid for in full. My time was wasted, my capital was wasted on the cost of inspections plus the appraisal, all for the deal to be poisoned by the appraiser disclosing information that they had no right to share with the seller. 

2) Are there any contacts for legal services in the Dallas/Fort Worth area who specialize in this type of case?  I have all of the documentation backing this up, including the seller's listing agent on the record that this information was given to them (again, unbeknownst to them without my authorization!)

For you appraisers out there, this is why your professional standards are so important, do NOT share information just thinking you are being helpful or nice, that document that you create is owned by the person who paid for it!

[Cody L.]

I’m so confused. You got an appraisal done and you were hoping it would come UNDER contract price so you could use that as a way to retrade the deal down? 

But it came up higher than contract price so you ordered another? But then that one was too low to be financed so you want to sue?

If I was the seller I’d tell you to get lost. The contract price is the price that buyer and seller agree to. Seller is not obligated to lower price due to a low appraisal just as buyer isn’t obligated to pay more if appraisal is high. 

As a Californian myself who buys in Houston, this type of stuff doesn’t make it easier for me to buy. I have to keep the fact that I live in Cali in the downlow otherwise buyers have a negative impression. 

Dude. If it was a deal at contract price, buy it. If you don’t, blame yourself. Not someone else. Who dares I’d they gave some under market rents. Wait them out. In the long run that’s small potatoes. I mean market rent minus their lease amount * 12 months isn’t all that much. 

You might want to take a total reassessement on how you do business. This is me just trying to be helpful and honest. Not trying to be a d1ck