A Real Estate Appraiser Discovers “the Appearance of Impropriety”

You won’t find a better example of the ethical breach known as “the appearance of impropriety” than this, a question from a real estate appraiser posted on appraisersforum.com. (Note: This is one of the infuriating websites that won’t allow you to post a reply or a comment until you register, and then informs you that it may be a day or more before the registration is approved, so you still can’t post a comment. Yes, the site is so crucial that I will hold my comment…or maybe write it down and save it in a file labeled “pending Appraisers Forum comments”—and wait with palpitating anticipation while my plea to be allowed to interact with a bunch of real estate appraisers is evaluated for worthiness. )

Here is the question:

“I was one of two appraisers in on an estate appraisal several months ago. I do not know what the other appraisal came in at but the property went up for sale 40% over my appraisal. Now they have lowered the asking price to right around my number. I have since come into an inheritance. Would it be unethical to make an offer on this property? My offer would be below my appraised value.”

The answer is yes, it would be unethical. All but one of the ten appraisers who commented on the post got it wrong, which may tell us something about real estate appraisers and the effectiveness of the profession’s ethics regulations and training. It is true, as the various mistaken commenters say, that the questioner truthfully signed a document at before his appraisal stating that he had no present intent to buy or other interest in the property, but that doesn’t settle the matter. If he tries to buy the property, it will appear that he was lying. Or it will appear that he was shopping: that as an appraiser, he goes into evaluations without any intent to buy, but is in the habit of knowing a good piece of property when he finds one, and may adjust his appraisal to suit his own needs when he decides that the property will be a good deal for himself, or maybe his son or best friend.

The appraiser’s dilemma is a retroactive conflict of interest. His interest in the property now in no way adversely effected his discharge of his professional duty at the time of the appraisal, and it doesn’t hurt his former client now if he comes back and makes an offer on the property; he may be the best potential buyer around. None of that matters. If appraisers are seen to be stalking the property they appraise for their own purposes, they can’t, shouldn’t, and won’t be trusted. He won’t be trusted. The client owning the property isn’t harmed, but the profession is.

Indeed, maintaining the health, integrity and perception of the profession is #1 on the list of ethical duties for real estate appraisers in the several Codes I examined. Here’s a typical provision, from the Massachusetts Code:

1. Members shall conduct their appraisal practice in a manner that will reflect credit upon the real estate appraisal profession and the MBREA. All Members shall refrain from conduct that is detrimental to the MBREA, the real estate appraisal profession, and the public.

That answers the question. Note that the provision specifies practice, not just the appraisal itself. And the practice of buying property yourself after you appraised it looks shady, because it easily could be. I could envision a statute making it illegal for an appraiser to do this, and everyone would instantly understand the reasons for the law. An effective one would include a prohibition on any friend, business associate or family member buying the property either.

The one appraiser on the forum who got the question right was a poster calling himself “Cool Hand Luke,” who wrote:

“The highest ethical standard should be for a professional to restrain himself from any act which could appear to be inappropriate, regardless of USPAP or AI or dictates of any other institution. Aren’t there any other investment properties for sale in your area that you haven’t appraised?”

Bingo. Hey, one ethical appraiser out of ten commenters isn’t bad.

No…come to think of it, it is.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.