Is an Appraiser a Fiduciary?

If deemed to be a fiduciary, appraisers could be held liable for breaching their fiduciary duties. But do appraisers normally perform in the role of a fiduciary? No. Though professionals, appraisers typically act in an arm’s-length manner in the capacity of independent contractors but not as fiduciaries.

A fiduciary is one who has a special relation of trust, confidence, or responsibility in his or her obligations to others, as does a bank trust officer, a guardian and his minor ward, the Executor of an estate, a company director, a lawyer and his client, or an agent of a principal (e.g., an estate liquidator or an auctioneer.) A fiduciary is expected to act as an advocate for his or her client who is normally in no position to supervise or control the actions taken by the fiduciary on his behalf. The client must take those actions on trust, and the fiduciary principle is designed to prevent that trust from being misplaced. Fiduciaries who violate that trust can be held liable for doing so.

The term “fiduciary” is derived from Roman law, and means a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor it requires. A person having a duty, created by his undertaking, to act primarily for another's benefit in matters connected with such undertaking. (Black's Law Dictionary)

Ordinarily, fiduciary duties do not attach to the appraiser-client relationship. This is true for all appraisal practice services because the independence required to render an appraisal practice service is fundamentally inconsistent with the status of a fiduciary. According to USPAP and to all appraisal society Codes of Ethics, the appraiser is required to act in an impartial and unbiased manner and NOT as an advocate. The appraiser is prohibited from acting in the capacity of an advocate, and, therefore, is prohibited from functioning as a fiduciary.

Nonetheless, there could be instances, albeit rare, in which a court might rule that, even though unintended, a fiduciary relationship existed between the client and the appraiser. Such abnormal dependence by the client might be brought about by such factors as the appraiser's superior expertise, the client's lack of sophistication about the type of advice being given, the length of relationship between the appraiser and client, personal friendships between the two, steps taken by the appraiser to cultivate the client's trust, special vulnerability of the client, an expectation by the appraiser that the client would not seek advice from another appraiser, etc.

When an appraiser performing an appraisal practice service has a “special relationship” with the client that goes beyond merely providing an independent appraisal practice service but also provides advice upon which the appraiser knew the client would rely in making important decisions, then a fiduciary relationship might be deemed to exist. But to establish the existence of a fiduciary relationship, the client would have to present “clear and convincing” evidence that such a close, dependent relationship existed. This would require more than mere proof of a client’s “subjective trust” in the appraiser, especially when they have dealt at arm’s-length. (Blue Bell, Inc. v. Peat, Marwick, Mitchell & Co., 715 So. 2d 408 (Tex. Ct. App. 1986).)

In Blue Bell, a Texas court, when asked to decide and set legal precedence in a case involving an accountant being sued by his client for a breach of fiduciary duty, stated: “The usual fiduciary relationships are those such as between attorney and client, partners, joint venturers, and close family members such as parent and child.” The court concluded that “Mere subjective trust, however, is not enough to transform an arm's-length dealing into a fiduciary relationship.” The case was dismissed.

By extension, given that both accountants as well as appraiser are considered “suppliers of opinion information to the public” (Soderberg v. McKinney, 44 Cal.App.4th), if a fiduciary relationship does not normally exist between an accountant and his client, then neither can a fiduciary relationship exist between an appraiser and his or her client.

Appraisers would be wise to maintain an independent, arm’s-length relationship with clients to avoid the formation of a what might appear to the client as being a “special relationship” with the appraiser. Such a relationship could result in the appraiser being mistakenly identified as a fiduciary and as having potential liabilities attendant to such a designation.