The Advocacy Review
An appraiser with 15 years of multifamily experience is retained by a divorce attorney to review an opposing expert's appraisal of a 12-unit apartment building. The original appraisal concludes $2,400,000 using a 5.0% cap rate and three sales from a different submarket. The attorney says: "We need you to find at least $300,000 of errors. If the review supports $2,100,000 or less, you get $8,000; otherwise $2,500. Just sign the review - we'll handle the court testimony, and you don't need to develop your own value." The appraiser has never appraised in that county and has no local sales data.
1. May the appraiser accept the fee arrangement? Analyze under the Ethics Rule and Standard 3.
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No. The fee is contingent on the direction and amount of the review conclusion: $8,000 if the review supports $2,100,000 or less, $2,500 otherwise. The Management section of the Ethics Rule prohibits compensation contingent on the amount or direction of value or on a stipulated result. Standard 3 also requires the reviewer to be independent and not an advocate for either party.
- The attorney's statement reveals a desired result, not a question. Accepting it would make the reviewer an advocate.
- The appraiser should restructure to a fixed fee that does not depend on the outcome, and should confirm in writing that the review will follow the evidence wherever it leads.
- If the attorney insists on the contingency, the appraiser should decline the assignment.
2. What must the appraiser do about competence and scope of work before accepting?
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Apply the Competency Rule and define the scope. The appraiser has multifamily experience but no local sales data and has never appraised in that county.
- The Competency Rule requires the appraiser to identify the problem, have the knowledge and experience to complete it, and - if lacking - disclose the deficiency, take steps to gain competence (research the submarket, associate with a local expert, study county data), or withdraw.
- Standard 3 requires a stated scope of work. A desk review can be a legitimate scope, but it must be adequate to support the reviewer's conclusions about the original appraiser's cap rate and comparable selection.
- If the review will include the reviewer's own opinion of value, that opinion is an appraisal and must comply with Standards 1 and 2. If it will not, the reviewer must be careful not to imply a value conclusion that was never developed.
- The appraiser should confirm access to local data or a local expert before accepting, not after.
3. The attorney says, "Just sign the review; you don't need to develop your own value." How should the appraiser respond?
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Signing work you did not perform or cannot support is a misrepresentation. The reviewer may complete a review that evaluates the original appraisal without substituting a new value, but the review must reflect the reviewer's own analysis and conclusions.
- The reviewer can conclude that the original $2,400,000 is not supported because the cap rate and comparables are not adequately supported, without stating a replacement value - provided the review's scope and limitations say so.
- The reviewer must not state or endorse a $2,100,000 conclusion unless it was developed and supported under Standards 1 and 2.
- Signing a document prepared by the attorney, or certifying conclusions the reviewer did not reach, violates the certification and the Conduct section of the Ethics Rule.
- If the reviewer will testify, the testimony must be based on the review actually performed and the reviewer's own competent analysis.