A Land Appraiser Prepared an Appraisal of a Property for a Real-Estate

question 153

Multiple Choice

A land appraiser prepared an appraisal of a property for a real-estate development company. The appraiser had been told that the appraisal would be used by the company to attract potential investors. Because the appraiser forgot to check the recent changes in the zoning by-laws, the appraisal was not accurate; the investor, a party unknown to the appraiser, was misled about the value of the land and, consequently, suffered a financial loss. On these facts, which of the following is true?

• A) A land appraiser owes a duty of care to his client, the company, but not to any potential investors.
• B) A land appraiser owes a duty of care to his client, and to potential investors only if he knows the name of the investor.
• C) The investor might sue the appraiser for "negligent misstatement causing economic loss."
• D) The investor must suffer his own loss, because an investor takes the risk and so must take care.
• E) A person cannot be sued for words that cause loss, only for actions that cause physical injury.

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Definitions:

Job-Order Costing

An accounting method used to track costs and evaluate the profitability of individual jobs or batches, particularly useful in custom or unique production environments.

Direct Costs

Expenses that can be directly traced to the production of specific goods or services.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to products or job orders, based on a chosen activity base.

Machine-Hours

A unit of measure representing the operational use time of a machine, commonly used in allocating manufacturing overhead costs in product costing.