By: Joshua Rikon and Jamie Sinclair.
The Uniform Standards of Professional Appraisal Practice (USPAP) are the generally accepted standards for professional appraisal practice in North America. USPAP contains standards for all types of appraisal services. The standards specifically require that an appraiser perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests. An appraiser must not perform an assignment with bias; must not advocate the cause or interest of any party or issue;” USPAP 2012-2013 Edition Ethics Rule, p. U-7.
The Hon. Wayne P. Saitta recently issued a decision in Pacific Dean Realty LLC v. New York State Urban Development Corporation d/b/a Empire State Development Corporation, Index No. 1692/12, Pacific Dean Realty LLC v. Specific Street, LLC, Index No. 21508/10 wherein he disregarded the leasehold tenant’s appraisal because the sample of leases contained therein were selected by the client, rather than properly independently selected by the appraiser. Indeed, on cross examination the tenant’s appraiser stated that he called contractors from other projects his firm was engaged in but ultimately did not obtain information on any leases other than the four given to him by his client, Specific Street.
The Court made its opinion about the appraisal process clear when it wrote:
This is a fundamental flaw. The comparable leases are used to establish what the rent in the open market is for similar leases. Collectively, the comparable leases are supposed to be a sample of the market. Inherent in the use of comparable leases, is that they are selected based on investigation and analysis done by the appraiser and the appraiser has determined that they are representative of market rents for leases similar to the subject lease.
In this case however, the appraiser did not make an independent study of the rents for spaces to operate shelters, he simply took four leases selected by his client. He has not established that these four leases are representative of the market. He did not look at leases of any shelters not operated by his clients. In fact, he did not even consider the leases of all the fifteen shelters his client was involved in, just the four selected by his client. [The tenant’s appraiser] is not in a position to know whether his client cherry picked four leases with higher rentals for the purpose of showing a market rent higher than the rent in the subject lease.
Unfortunately this is not an isolated incident. Other courts have made adverse inferences because of an appraisal’s lack of impartiality. In In re City of New York, 25 Misc. 3d 1240(A), 906 N.Y.S.2d 771 (Sup. Ct. 2009), Claimants argued that the City’s appraiser lacked credibility because he was unable to prepare his reports without significant input from the City’s attorneys and because he relied on counsel’s flawed formula in calculating damages. The Court agreed and explained that:
Having held that the testimony regarding [the City Appraiser’s] lack of compliance with the USPAP guidelines is properly before the court, the court further finds that [the City Appraiser’s] adoption of the suggestions and valuation formula offered by counsel for the City should have been disclosed in his certification in accordance with the USPAP. From this it follows that his failure to do so is an issue that impacts adversely on the credibility of his findings.
In re City of New York, 25 Misc. 3d at *17.
Along the lines of ethical violations under USPAP, Claimants requested a sanction against the Condemnor’s appraiser in In re Vill. of Port Chester, 27 Misc. 3d 1203(A) (Sup. Ct. 2010) aff’d sub nom. Vill. of Port Chester v. Bologna, 95 A.D.3d 895 (2012). In that case, the Village’s appraiser testified that he had prepared several drafts of his appraisals for the properties, some of which were shared with the Village’s attorney, but at some point the drafts were destroyed by the appraiser after the drafts were shared. The trial court granted the Claimant’s motion for sanctions and elected to take an adverse inference with regard to the destruction of the prior drafts. It noted that the appraiser had an ethical obligation pursuant to USPAP to preserve the draft reports. It also noted that the draft reports must be provided to opposing counsel at the completion of the appraiser’s direct testimony for cross-examination. The Appellate Division affirmed and wrote that:
[T]he Supreme Court providently exercised its broad discretion in granting the claimants’ request to impose sanctions for the spoliation of evidence to the extent of according an adverse inference with respect to the destruction of the draft appraisal reports prepared by the Village’s appraiser.
Vill. of Port Chester v. Bologna, 95 A.D.3d 895, 897 (App. Div. 2d Dept 2012).
The appraiser’s destruction of the draft reports required a negative inference because there was no way to effectively cross-examine the appraiser to determine the full extent of the attorney’s involvement in the appraisal process in light of the appraiser’s disclosure that he probably made changes to his appraisal report after he provided the drafts to the Village’s attorney.
It is important for lawyers and appraisers to maintain their credibility by performing their respective roles. An attorney should be an attorney and an appraiser should be an appraiser. When the lines are blurred credibility is diminished.