Are appraisers conflicted nerds? Generally we are not conflicted, but focused and straight shooters by John Rynne

Rynne, Murphy & Associates, Inc." width="240" height="300" /> John Rynne, Rynne, Murphy & Associates, Inc.

No, appraisers generally are not conflicted but focused and straight shooters. In fact some call appraisers; nerds, geeks and squares. I’d be careful folks; remember “Revenge of the Nerds”? It could be worse; how about “Dumb and Dumber.” Regardless, we are aware of potential conflicts of interest having to do with procedure and protocol. Appraisal drafts has caused some controversy. In the commercial segment, drafts are relatively popular especially in pending litigation cases where the attorney and their client may want to make sure that the appraiser got all the facts of the property correct. Drafts are subject to subpoenas and are discoverable under certain circumstances. Under the Uniform Standards of Professional Appraisal Practice (USPAP) there is no definitive rule on this issue. Some appraisers dispose of the draft; arguing that it represents a work in process which hasn’t been concluded. However, since it does communicate a value it could represent an appraisal. It’s a muddy issue which is certainly a grey area. However, even though the appraiser destroys the draft, an attorney or his client may not have. It could be floating around forever on the Internet. Thus, the appraiser should have preserved the draft so he or she can have a defense under cross examination in future litigation which may come about because of the draft.

A common misconception appraisers have to deal with is the intended use and intended users of the report section. Based upon Uniform Standards of Professional Appraisal Practice (USPAP) changes within the past decade, the intended use and intended users of the report cannot be changed once the report is completed and issued. As an example, my office completed a number of appraisals where the intended use was to estimate the values for a partnership buyout of a portfolio of properties. The intended users were the partners. Three months after the assignment was completed, a lender requested that the reports be recertified to them(the lender) for mortgage financing. Thus, there was a change in 1)The intended users and 2)The intended use. Based upon USPAP guidelines this request takes the form of a new assignment. Therefore, a new quote was made for a new assignment. However, the appraiser can do a few things that doesn’t require a “re-invention of the wheel.” First, most of the time at least within a three-month time period, a vast majority of the original report doesn’t normally change substantially in regards to the physical characteristics of the subject property and even the comparables. This reduces the fee and turnaround time to a palatable level. Secondly, it’s possible that a retrospective value commensurate with the original date of inspection is sufficient. This further reduces the fee and turnaround time because a second inspection is not needed. However, it’s important to get permission from the original client and possibly some of the intended users to use original photos and other information such as leases, etc. However, I make it policy even if it’s a retrospective value, that another search of comparable sales and rentals is made; just in case new sales and rentals which may surfaced that were missed in the original report.

That brings me to the next question. Potential Client A needs an appraisal for a lawsuit and gives you substantial information about the case including some privileged information. If the appraiser makes a proposal or is in the process of making one and a proposal request comes from the opposing side or potential Client B; I would declare a conflict. If potential Client B asks what the conflict is, don’t disclose. Furthermore, don’t tell the potential client A about the contact from potential Client B.

Another school of hard knocks example, about 15 years ago I was hired by a lender to appraise a subdivision which was in distress. They wanted to get a deficiency judgement. The developer met me at the site along with two bank representatives. Everyone was cordial. Before we left the site the bank reps yelled over to me within ear shot of the developer and invited me to a nearby restaurant for a drink(s). One year later while I was giving testimony for an examination before trial, I was asked under cross examination whether I was really objective because I had that drink(s) with the bank representatives after the inspection. I answered yes but I’m sure it hurt the case. The case was later settled in Federal Bankruptcy court the date of the trial.

In summary, there is more to appraising than just cranking out values. Us nerds, “I mean appraisers,” are really dynamic and versatile; not Dumb and Dumber!

John Rynne, MAI, SRA, is president and owner of Rynne, Murphy & Associates, Inc., Rochester, N.Y.