By Claudia Gaglione, Esq.
National Claims Counsel
LIA Administrators & Insurance Services
We continue to focus on septic tanks because they remain a common source of claims against appraisers of rural properties, acreage, and vacant land. While we prefer not to repeat topics, as long as these claims persist, we will keep providing advice and suggesting language for appraisal reports.
It's encouraging to see that some of our recommended language is being used in reports, and even more reassuring to know that judges are taking notice. Judges have commented on the inclusion of exculpatory or explanatory language when ruling on motions or during mediations, which has influenced their assessment of the parties' responsibility.
When we receive this feedback from local counsel, it reinforces that our advice is making a difference. Knowing that our guidance is being read motivates us to continue offering examples and insights.
Claim #1
In Arkansas, an appraiser was hired to assess an 8-acre parcel of vacant land for a purchase loan. In his report, he relied on MLS and public records, stating the property had "access to" public electricity and water, and that a septic system had been installed. Wisely, the appraiser included this disclaimer:
"The appraiser noted from both MLS and public records that the property has access to public electric and water and that a septic system was installed at the location. The appraiser assumes this information to be correct but is unable to independently verify the accuracy of the records reviewed.
There is no way to test the utilities. There is no way of knowing if the connection runs to the parcel or near the parcel.
The appraiser did not personally determine the existence or location of the septic system. The appraiser did not visually inspect the septic system and cannot confirm whether or not it is functional or adequate for the subject property."
The buyers purchased the property intending to build a new home. They were pleased to find that utility connections extended to the parcel boundary, minimizing the cost of connection. However, when their contractor began the permitting process, they discovered that while the seller had applied for septic system permits, the system had never been installed.
The buyers sued the sellers, real estate agents, and the appraiser to recover the cost of installing a septic system.
In response, the defense counsel filed a motion to dismiss the complaint, arguing that the appraiser owed no duty of care to the buyers. Additionally, the defense argued that the claim of negligent misrepresentation was invalid due to the disclaimers in the appraisal report, which negated any reasonable reliance on the appraiser’s statements. The judge agreed and granted the dismissal, citing the clear language in the report and concluding that the issue was between the buyers and sellers.
Septic systems are common on rural properties and acreage, as public sewer service is rare. Unfortunately, issues with septic systems are a frequent source of claims against appraisers.
While no magic language can prevent lawsuits related to septic system problems, well-crafted disclaimers can help get the appraiser dismissed from a case or, at least, convince a judge or mediator that the appraiser bears the least responsibility among the defendants.
Appraisers should always cite the sources used to determine whether a property has a septic system, such as MLS or public records, and make sure those sources are reliable. It's ideal to consult multiple sources.
Additionally, it’s helpful to clearly state the obvious—that the appraiser cannot inspect or verify the septic system’s existence or condition.
Finally, every report should explicitly state that the appraiser is not a home inspector and that an appraisal is not a substitute for a home inspection.
Claim #2
In the 1970s, a couple in Texas purchased a 24-acre property and built a 900-square-foot, two-bedroom, one-bath home, complete with a septic system. In 1999, the now-elderly couple transferred the property to their son and his wife, who decided to build a larger home. They started with a simple one-story structure, with much of the construction done by friends and family, though a few licensed contractors were hired along the way. Over time, the house expanded into a two-story, 3,500-square-foot home with four bedrooms, four baths, and a wraparound porch. The original house was also renovated and turned into a guest cottage.
By 2022, the property was put up for sale after the son had passed away, and his widow no longer wanted to maintain the house, guest house, and acreage. An appraiser, who knew the family and had visited the property before, was hired to prepare a purchase loan appraisal. The appraiser was familiar with the area and aware that much of the construction had been done by non-professionals.
During the appraisal inspection, the appraiser noticed that the house had been freshly painted and cleaned, and he wondered if it was merely for show or to hide something. He did his usual walkthrough, turning on every faucet and flushing every toilet. He met the buyers’ agent, who mentioned how much her clients loved the house and couldn’t wait to move in, calling it “charming.”
When writing up his report, the appraiser decided to be extra cautious, knowing that older homes often hid issues beneath the surface. He included more detailed language than usual, suspecting potential problems that could arise later.
Soon after the new buyers moved in, they experienced plumbing issues. They hired a plumber who discovered some concerning problems: many of the fixtures and connections appeared to be a patchwork of mismatched, salvaged materials. Worse, he couldn’t figure out where the plumbing connected to the septic system. After further diagnostics, it was revealed that there was no septic tank servicing the main house. The waste was apparently draining into the fields behind the home.
It also appeared that an attempt had been made to connect the main house’s plumbing to the small septic tank for the guest cottage, but that connection had failed years earlier. The plumber informed the buyers that the house would need significant repiping, partly due to the age of the home and partly because of the poor original workmanship. Additionally, a new septic system would need to be installed.
The buyers filed a lawsuit against the seller, the real estate agents, the home inspector, and the appraiser, claiming negligence for failing to disclose the plumbing problems and the lack of a septic system. They argued that the home was “worthless” without a functioning waste disposal system and demanded over $100,000 in damages, including costs to live elsewhere during the repairs. The seller, who had relocated to Florida, did not participate in the lawsuit.
The appraiser’s instincts proved invaluable. His report included several pages of strong disclaimer language, some of which is highlighted below:
“According to county records, the seller’s disclosure, and the MLS, this property is serviced by a private septic system. The appraiser cannot verify whether that is true. The appraiser did not physically inspect the septic system, nor does he know its location, age, or condition. The appraiser is also unaware if the system is sufficient for a home of this size or its maintenance history.
The appraiser strongly recommends a specific septic inspection to address these concerns.”
He further clarified:
“The appraiser is NOT a home inspector. The appraisal report is not a home inspection and should not be used as a substitute. The appraisal does not guarantee the home is free of defects."
“The appraiser has been retained to provide an opinion of value for the subject property. The ‘inspection’ performed is more of an observation and is not intended to reveal defects in mechanical systems, plumbing, electrical systems, structural integrity, roofing, or other components of the home. The appraiser is not, nor does he claim to be, an expert in those areas."
The report also explained the limits of the appraiser’s inspection:
“The appraiser cannot inspect systems hidden behind walls, under floors, or within cabinets, closets, or furniture. It is not the appraiser’s responsibility to uncover such issues, nor would he have the expertise to diagnose many of them. Additionally, the appraiser does not guarantee the home is free of environmental issues such as mold, nor does he inspect for wood-destroying insects, radon gas, asbestos, or other environmental hazards.”
Despite this thorough language, the judge did not dismiss the appraiser from the case before trial. However, the judge did note that the arguments and disclaimers were “persuasive” and could be presented to the jury.
The case was settled before trial, and the appraiser’s contribution was significantly less than that of the other defendants—far less than what would have been spent on discovery and trial preparation. The appraisal’s detailed language played a key role in this favorable outcome.
If you are appraising a property serviced by a septic system, consider cases like this when preparing your report. Always include the source(s) of your information and as much disclaimer language as possible. You never know when a septic system could become an issue for you.