Changing Appraisal Conditions

Appraisers generally want to know what a potential client needs before they give them a bid or quote on the appraisal of a property.  After I know a property address or the Assessor’s Parcel Number (APN) I look it up on the Clark County Assessors website to see just what kind of property I’m being asked to appraise.  There is often an aerial view of the property, ownership information, a deed from its past conveyance and at times even an Assessor’s sketch of the building.  Short of visiting the property before bidding, which would be costly, the Assessor’s information is useful.

I often have to explain to potential clients that my assignment fees relate to the number of hours that it takes me to complete an assignment it has nothing to do with value.  It could happen that a 300 acre vacant land parcel with a $ 30 Million market value has an appraisal assignment fee that is lower than that required for a 5,000 SF retail or office building on a 1 acre site with a $ 1,000,000 market value. 

Once I know what needs to be valued, I can then move forward and discover from the potential client what the purpose of the appraisal is.  If I discover it is for lending I immediately mention to the potential client the fact that many lenders (mostly banks) want to originate their own appraisals.  Some banks have a select group of appraisers on their “panel” and others use third-party Appraisal Management Company’s (AMC) to do their bidding.

If a lender / bank is not controlling who gets an appraisal assignment then I can make a bid on it.  It’s no secret that when the banks are having their panel appraiser or contracted AMC firm select a party for an assignment it ends up costing the client 20% to 100% more to have a property appraised.  I often have to console those who have to pay outrageous, inflated appraisal fees to use the bank selected appraiser.  Someone should be posting the fees online so everyone knows what’s going on.

Once I have a fee established for a property I already know an approximate turnaround time because I had to consider how many hours of my time it was going to take.  If I’m not busy with other assignments I can usually deliver a report quickly and on time, except when the client discloses that he has different needs and requirements that those we initially discussed.

Appraisal assignment term are usually agreed to in an engagement letter so they don’t usually change after you begin.  But if you take an assignment without having an engagement letter signed, yes it happens, you may find out that you are doing a lot of work for nothing and not getting any closer to completing the assignment needed by the client.

That happens when you are researching and photographing / observing current comparable sales but the client didn’t tell you there is a retrospective date of value needed, or you have completed an income approach but were not told that a lease or two encumbers the subject property.  There is a difference for appraisers when they are valuing a fee estate interest or a leased-fee estate interest.

We all know that considering a purchase agreement is a must, but some clients hide that fact that one exists because they don’t want the appraisal biased.  I understand the psychology of that thought but as an unbiased appraiser I am immediately skeptical of a purchase agreement.  So clients don’t need to hide the information from me, I’m not going to go through an extensive analysis and give an agreement that has been drafted between a potential buyer and seller much weight. 

One of the favorite things for clients to do is to forget to mention the fact that a property is owned by multiple parties and that the client need a total fee value opinion and an opinion of the fractional interest values.  Fractional interests require an extensive discussion and analysis that is separate from what is typical in an ordinary appraisal assignment.  The analysis adds time and thus appraisers generally increases their fees to complete fractional interest valuations. 

Worst of all are the assignment taken when the client reveals, when you are just about done with the report, that the intended use wasn’t really what they told you it was.  You produced a credible result for an estate valuation but then you discovered that the real intended use was for litigation.  The Judge and the opposing counsel may not consider your report credible when it wasn’t even completed for litigation. 

We all hope that clients provide correct and complete information that we can rely on before we begin, but it’s not always the case. Having to basically rewrite a report will bring you around to requiring signed engagement letters with clients quickly.  It’s called learning the hard way, and it’s a painful road.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

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