Appraisals

By Poelman & Langa, Attorneys

One of our daily newspapers recently featured an article on appraisals. It was written by a mortgage broker, so it dealt with the business aspects of the phenomenon, and it occurred to us that we should present some of the legal considerations.

First, it is important to remember that an appraisal is an opinion. It is not a statement of fact. There is no way anyone can tell you the value of your property. The concept itself is fluid. When an owner thinking of selling commissions an appraisal, he wants to know what his asking price should be. When the appraisal is done for a gift tax or inheritance return, the owner wants to know what is the least value he can report and get away with it. Between those two appraisals, there will almost always be a large gap.

Lawyers often are looking for the "fair market value" when they order an appraisal. That is a legal term, and it applies to the price the government must pay when taking private property by condemnation. It also will often apply in an arbitration to fix the rent in a reopening of a long term lease. But that’s a technical legal term and not what the usual seller or buyer is interested in.

All of which brings us back to the original point: An appraisal is an opinion. It is not a legal document, and it is not binding on anyone, unless the appraiser has been acting as an arbitrator. Because it is an opinion, it is only as good as the skill and experience of the appraiser. If it looks too high or too low, you can usually get another opinion from another appraiser (or the same appraiser) that is more to your liking. If you order an appraisal you need to tell the appraiser what you need it for, so that he can give it the proper spin.

There is nothing wrong with an appraisal that serves the purpose of the person paying for it, but you have to realize that such is always the case. When reading an appraisal, always approach it with a reasonable amount of healthy skepticism. A good appraiser will always state the purpose of the appraisal, and will review the methods and theories that he used to produce it. Those are as important as the bottom line.