Pressure to 'Make the Number Work' for a Lender
You are an accredited rural appraiser engaged by a community bank to appraise a 480-acre irrigated farm securing a loan. The loan officer calls after you deliver a draft indicating $2.95M. The bank's internal loan-to-value policy requires an appraised value of at least $3.2M to close the loan as structured. The loan officer says: 'The borrower really needs this to close Friday. Can you look at those two higher sales you mentioned and weight them more? We've used you for years.' You know the two higher sales are 20% larger, have better soils, and one is a related-party transfer. The bank is a long-standing client representing a significant share of your annual revenue.
1. What are the ethical and standards issues raised by the loan officer's request, and what is your response?
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Issues:
- The request is an attempt to influence the value conclusion to hit a predetermined number - advocacy, not appraisal. Accepting it would violate the requirement to develop and report an unbiased, independent opinion.
- The two higher sales are not more comparable: larger, better soils, and one is a related-party transfer. Weighting them more to reach $3.2M would be unsupported and misleading.
- 'We've used you for years' is client-pressure leveraging the relationship. Independence cannot be conditioned on future engagements.
Response:
- Decline to adjust the value to meet the LTV target. Explain that the sales comparison already considered those sales and that their differences (size, soils, related-party) justify the weights used.
- Offer legitimate options: re-examine the analysis for any genuine error; discuss the loan structure with the bank; or note that a different value would require market evidence you do not have.
- Document the request and your response in the workfile.
- If pressure continues, consider whether the engagement can continue independently; you may need to withdraw.
Deliver the unbiased value; do not let the LTV target drive the analysis.
2. How should you handle the long-standing client relationship and the related-party sale in your report and workfile?
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Client relationship:
- Disclose the prior relationship only to the extent required; more importantly, ensure the report is not conditioned on future work and contains no contingent-fee or outcome-dependent language.
- Keep the engagement letter clear that compensation is not contingent on the value or the loan closing.
- Retain documentation of the pressure and your refusal in the workfile.
Related-party sale:
- Identify it as a related-party transaction in the sales grid and explain why it was not relied upon (or was given minimal weight) - related-party sales may not reflect arm's-length market conditions.
- If used at all, adjust for conditions of sale and disclose the basis.
- Do not let the presence of a high related-party sale be used to inflate the conclusion; explain its exclusion clearly so the reader understands the reasoning.
Both disclosures protect the credibility of the report and demonstrate independence.