The "Conditioning" Of Appraisers

Author: Ted Faravelli, Jr., is a real estate case consultant and state-certified appraiser specializing in forensic valuation services, litigation support and expert witness testimony. With more than twenty-three years of experience, he has consulted in over 100 cases and has been designated as an expert witness to the California Superior Courts of Sacramento, Marin, San Francisco, San Mateo, Alameda, Contra Costa, Santa Clara, Orange and Los Angeles Counties.

con•di•tion – noun

1. a particular mode of being of a person or thing; existing state; situation with respect to circumstances
2. a restricting, limiting, or modifying circumstance: It can happen only under certain conditions.
3. a circumstance indispensable to some result; prerequisite; that on which something else is contingent: conditions of acceptance
4. something demanded as an essential part of an agreement; provision; stipulation: He accepted on one condition.
5. Law.

a.    a stipulation in an agreement or instrument transferring property that provides for a change consequent on the occurrence or non-occurrence of a stated event.

b.    the event upon which this stipulation depends.

    6.  Appraisal.

a.     the process of extracting unlimited free services from an appraiser.

b.     a psychological technique used by lenders to produce outcome-based appraisal results.

Few things elicit such an emotionally charged response from an appraiser as the word “condition.” But what exactly is it about the word that invokes rage, resentment, angst and disgust?

Appraisers are in a service profession, they provide their expertise in the form of opinions. What they offer is essentially their time, not unlike any other service-oriented professional. Fees for service are usually set by mutual agreement; that is the client typically will set the fee and the appraiser can usually take it or leave it.

Once agreed the appraiser receives the assignment, completes and submits the report to the client; then starts the “conditioning” process. The timing is usually a factor in that the client may have the appraisal report for several days or likely weeks prior to demands that the “conditions” be satisfied immediately, if not sooner, as they are always prior to doc or prior to funding.

Let us examine a recent set of “conditions” received at an appraiser colleague’s office.

1. The first “condition” was for them to change the lender’s name to a new client.
2. The second “condition” was for the appraiser to change the occupant status from tenant to “owner”.
3. The third “condition” was for the appraiser to state “there is no pending litigation” at the subject complex.

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“Conditions” one and two are simply enticements to commit material misrepresentation.  Both “conditions” are prohibited by USPAP.  When they conveyed this to the client they become quite irate spewing the standard formulaic response “our other appraiser’s do it” and “they’re the client (hence always right) and these are our instructions”; pathetic, but nonetheless a reality. 

This brings us to the third “condition” - appraiser to state there is no pending litigation at the subject complex.  This “condition” is nothing less than a thinly-guised attempt to expand the scope of work after the fact.  The appraiser agreed to perform the service; however they expect to be compensated for such. 

The most ridiculous “condition” request received by our office was several years ago when an underwriter “conditioned” the report that the appraiser needed to remove the freestanding gas range/stove, seal and cap the gas line/bib and haul away the appliance, also to install smoke-detectors in the main residence; as they noted there where no smoke detectors in the rental – a state law.  This is where is gets ugly, as it was the client’s position they do not pay for “conditions.” Fine, I say, but I’m not Paul Rodgers and this ain’t Free. 

It is the stance of the lending industry, that any and all “conditions” are universal mandates that must be completed; regardless of their reasonableness or relevance and at no cost to them.  That is not to say that all conditions are unreasonable mind you.  If there is an error or omission in the report, then it is incumbent upon the appraiser to correct or satisfy the deficiency.  They have had examples of a lender calling five and half months after the report was completed requesting, as a “condition” of acceptance two new recent comparable sales.  Outrageous? 

This would be analogous to “conditioning” your automotive mechanic to install new brake pads, no charge for parts or labor, because he changed the oil last week; or as a “condition” to you being satisfied with your gourmet meal at the upscale eatery, the restaurant “throw in” bananas foster desserts and a round of 20 year old tawny port - all gratis. 

As ludicrous as is may seem, appraisers have been conditioned to respond to requests that have absolutely no reasonable basis.  Many appraisers have said that is simply a business decision to provide limitless services for free to placate and appease the client.  Seems to me they must have studied appraisal business practices under the Neville Chamberlain method; appeasement gets you a jackboot firmly placed on the back of your neck. 

Unfortunately, these poor and unsound appraisal practices create and reinforce expectations of those requesting them; and result in collateral damage to those whom simply refuse.  Like a Pavlov dog, they are conditioned to respond; as they are all too eager to placate and are willing to do so free of charge.  Do they stop to think of the risk, liability or exposure they are opening themselves to?  Or the lost revenue opportunities?

One solution is simple; “condition” the client to respect and honor your time and expertise.  The surefire way is make them compensate you for your time and services.   After all, charity begins at home.

Author: Ted Faravelli, Jr., is a real estate case consultant and state-certified appraiser specializing in forensic valuation services, litigation support and expert witness testimony. With more than twenty-three years of experience, he has consulted in over 100 cases and has been designated as an expert witness to the California Superior Courts of Sacramento, Marin, San Francisco, San Mateo, Alameda, Contra Costa, Santa Clara, Orange and Los Angeles Counties.   http://www.Faravelli.net