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[Commercial Grade] A Few More Words About Appraisal Pressure

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. In this post, John piles more on the plate appraisal pressure buffet, providing additional insights, that even years of pressuring him, I didn’t fully appreciate he had. He sends the clear message that appraisal pressure is like going to a bad restaurant. The customer won’t complain if the food and service doesn’t meet their standards, they simply won’t come back.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC [1] and he is, on Fridays on Sundays, one of the smartest guys I know. …Jonathan Miller



Just a few more words about appraiser pressure before I let this go. When I teach my Valuation class at NYU, I ask on the first day, “Why do appraisers get hired?” The answer “Because they have to be.” Sure, on occasion there will be someone willing to come out of pocket to find out what the professional appraiser says the value of their property is, but 90% of the time appraisers are hired because they have to be:

And the list goes on. And in each case, the client has a strong interest in the outcome of the appraisal. The investment banks want to see it high to get a higher rating on its debt. The estate wants to see it low to minimize the estate taxes. The pension fund wants to show its investors that it made a good purchase and is creating value over time.

The investment banker makes a bigger bonus if he pushes more money out the door. The asset manager at the pension fund is rewarded if his assets perform well. And so on.

Appraiser pressure is not just the sleazy mortgage broker threatening to pull the plug if you don’t make his number. In most cases, appraiser pressure is oh so subtle.

I was told recently by a prestigious investment fund that they thought our appraisal was low (even though we concluded to the 2 month old purchase price, and confirmed that the circumstances of sale were “market-oriented”) and that if our conclusion was not higher the report was “going to get a lot of attention and be reviewed to death.” The sub-text: we will not be permitted to finalize the report that is out in draft and submit the invoice until we have been raked over the coals to “prove it.” Sticking to my guns will be a long, painful and ultimately costly process, whereas if I agree to change my value during this draft phase, no one will be the wiser, I can finalize the report, submit my invoice and move on.

In most cases, appraiser pressure is impossible to prove. If you kill a deal or “disappoint” the client, you just don’t hear back. In most cases, nobody is so stupid as to make an overt threat. It is just understood.

I get excited when I read all the press about the AG cracking down on appraiser pressure, until I realize that our system is so fundamentally flawed that it is likely beyond repair.