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Contingent Appraisal Fees

by Garrett Steele on Aug 8, 2015 ROOT 1331 Views

Many appraisers are asked by clients or potential clients to "work with me, you will get paid through escrow."  The problem for appraisers is that it's often the case that if the appraisal doesn't "come in" in these circumstances there won't be an escrow to get paid from.  It's one of those situations that appraiser's must approach with caution.  If your fee won't be paid if a certain value is not reached clearly you can't accept the assignment.

Even real estate developers with speculative projects have come to realize that most commercial appraisers will not invest their time and expertise and hope to get paid, they simply refuse to be put in that contingent fee situation.     

There are appraisal assignments that include a fee payment via an escrow that may be entirely acceptable.  If for example an escrow is fully funded and your appraisal is just being provided to meet a court requirement to settle a probate, a bankruptcy or a civil action the fee is not contingent.  In fact most of my litigation work is paid in part or in full by the client or by the attorney-client.

It's amazing how many time I have been asked if I could delay all or part of an appraisal fee, after a while an appraiser learns not to agonize over this "lost" business.  In my experience if the client is not willing to pay at least half in advance that is a red flag.  If payment isn’t forthcoming at the beginning of the assignment it is unlikely that it will materialize later.  You have to wonder about a client who is buying or selling a $ 500,000 building or a $ 1,000,000 parcel of vacant land but can't come up with a $ 2,500 appraisal fee. 

I have been in the appraisal business for many years in the Detroit area and I generally accept most forms of cash or credit card payments, I try to offer some payment flexibility, and my arrangement with many clients is payment in full in advance or 50% paid in advance and the remainder paid when I deliver a report.

For me it’s not about making lost appraisal fees up through volume.  Even though a potential appraisal fee may not be contingent it's generally not a good business practice for a small company like mine to wait for payment until after an appraisal is completed.  If it's a bank or government agency the risks are acceptable, even though the wait for payment can be difficult, but even clients like the Veterans Administration (VA) have paid half in advance when asked.

It’s worth noting that the USPAP Ethics Rule is clear that an appraiser “must not accept an assignment, or have a contingent arrangement for an assignment, that is contingent on any of the following: 1) the reporting of a predetermined result, 2) a direction in assignment results that favors the cause of the client, 3) the amount of a value opinion, 4) the attainment of a stipulated result or 5) the occurrence of a subsequent event directly related to the appraiser’s opinion and specific to the assignment’s purpose.”

While your potential client may not want to see the rule there will be times when you have to send a copy of it to them or at least explain it to them.  So you don’t have to buy into their arguments about potential profitability and viability, the rules / law just does not allow you to go there.

Garrett J Steele, ASA, MRICS, BAE at gsteele07@gmail.com is an experienced Michigan Certified General Appraiser specializing in commercial real estate appraisals in Charlevoix, Crawford, Genesee, Lapeer, Livingston, Macomb, Oakland, Roscommon, Washtenaw and Wayne County.  His Internet website is http://www.horizonappraisals.com

Article source: http://www.appraisalarticles.com/4559-Contingent-Appraisal-Fees.html

http://www.horizonappraisal.com
Detroit Area Commercial Real Estate Appraiser
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Garrett Steele

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Garrett J Steele, ASA, MRICS, BAE at gsteele07@gmail.com is an experienced Michigan Certified General Appraiser specializing in commercial real estate appraisals in Charlevoix, Crawford, Genesee, Lapeer, Livingston, Macomb, Oakland, Roscommon, Washtenaw and Wayne County. His Internet website is http://www.horizonappraisals.com

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