Appraisal Mistakes

I have read hundreds of appraisal reports.  In a past litigation related  positions I was required to informally review the appraisals of appraisers on both sides of a case so that I could suggest deposition questions, cross examination questions or offer rebuttal to an appraiser's assumptions or analyses.   If you know what you are looking for its not hard to find appraisal problems.  In fact, there are few commercial appraisals that don't have at least one or two mistakes.  Even when you find the rare reports with no mistakes, the data selection, weighting of the sales, the selection of depreciation rates, the selection of the capitalization rate and the size of the adjustments used are all open to interpretation.  It is after all an opinion of value.

Where do you find appraisal mistakes?  Omissions are responsible for some appraisal problems.  It doesn't happen often, but I have seen appraisals on commercial properties like office buildings with tenants that have excluded the
income approach.  Generally a property type that is bought and sold based on its income production should not exclude the income approach.

While some appraisals specifically exclude a methodology, due to an agreed upon restricted-use or a jurisdictional exception, most do not.  Atypical assumptions, hypothetical conditions or exceptions should be prominently displayed where value opinions are expressed, if not that is a serious problem.  The whole point to licensing is to protect the public, and an appraisal has failed that charge if their disclosures are hidden.

Mistakes are sometimes made when appraisers fail to collect the correct factual information or they change it from right to wrong when it reaches the report.  An example of this is the transposition of its size, like making an 8.67 acre site a 6.87 acre site.  An even more serious problem is identifying the wrong property in the field or making a mistake with the zoning which often influences highest and best use.

Many appraisers, like attorneys, reuse portions of their old work as templates for new assignments and if care is not taken some unwanted verbiage can be included in a report.  Often the information carried forward has little or no negative effect, but it can be confusing and it can negatively impact the credibility of the work.

If you find yourself relying on an appraisal report that was completed for another person, remember that if it has mistakes the appraiser is not likely to be held liable to you for your reliance upon it.  As we are all more aware after
the recession that began in earnest in 2008, real property markets change and sometimes they change quickly.  What sometimes appears to be an appraisal in error can be an appraisal from the past.  I have seen appraisal entirely changed to suit someones purpose, if you are using someones work you may be surprised that its already been manipulated to meet someones needs.  

I find it more challenging to solve an appraisal problem and explain it in a report than spending my time trying to be critical of others work, and that's why I now spend relatively little time reviewing.  I have found that it is much easier to find fault with the work of others than to create your own original work.

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