Monday, April 9, 2018

Appraisers in Arbitration - Legal Risk?

As real estate appraisers seek to diversify their services beyond traditional lending work, one of the fields I think appraisers should be looking to more is serving as an arbitrator. When disputes concern real estate interests, appraisers are well-positioned to offer their expertise not only as valuation experts for one side, but also as decision-makers in the role of an arbitrator. For appraisers interested in pursuing assignments as an arbitrator, I wrote a short piece for the Appraisal Institute's Valuation magazine (4th Quarter 2017) -- the purpose was largely to help appraisers feel comfortable about the different legal risks that arbitrators may face. 

The article tells the true story of an appraiser serving as a commercial rent reset arbitrator sued (unsuccessfully) by a tenant who felt their rent was reset too high.  The case concerned a building in Beverly Hills and the value of the leased premises was around $40 million. Here's an excerpt:

"At the arbitration, the building owner’s appraiser-arbitrator presented an $18 million land valuation, while the landowner’s appraiser-arbitrator proffered $50 million. The appraiser-arbitrator in the middle decided on a $40 million valuation, which formed the foundation of the arbitration award. Stuck with that outcome, the building owner rushed to court, suing (among several other parties) the appraiser-arbitrator who served in the middle. Through its high-powered lawyers, the building owner made a variety of scary legal claims like “breach of the covenant of good faith and fair dealing,” and made a demand for “millions of dollars in losses derived from this defective appraisal award” plus punitive damages. It sounded like the whining of a very sore loser.
Having previously witnessed this type of situation, my colleagues and I wondered how many days it would take for the lawsuit to be dismissed. How could we be so sure that the building owner had made a colossal error in suing the appraiser-arbitrator in a rent reset arbitration?"
You can learn why the appraiser-arbitrator won the case by reading the article entitled:  "Take a Seat: Appraisers Shouldn't Let Liability Fears Prevent Them from Sitting in an Arbitrator's chair."  It's a free link.


For appraisers wanting a more complete discussion of appraiser-arbitrator liability issues, I contributed a chapter to a new book entitled Appraisers in Arbitration. This book was written by Paula Konikoff, JD, MAI, AI-GRS. Paula has served on the Appraisal Standards Board, is one of the most sought after appraiser-experts in the country and is an experienced arbitrator -- so, I was lucky to be invited by her to contribute the chapter on appraiser-arbitrator liability issues. In that chapter, I offer some key liability prevention points. 

The book was just published by the Appraisal Institute, and it's available on the Appraisal Institute's website here: http://www.valuation-digital.com/resourcescatalog/q4_2017?pg=12#pg12. As a general matter, if you are pursuing work as an arbitrator, I think the book will be helpful to understanding how service as an arbitrator fits in within your profession as an appraiser and your professional duties under USPAP and other standards and how to conduct an arbitration well. (My contribution of the chapter was purely a voluntary endeavor and I receive no proceeds from any sale of the books.)

As far as the specific topic of liability protection for appraisers serving as arbitrators, one of the key points in my chapter is for the appraiser to expressly frame the service being provided as arbitrator services in a well written agreement. By framing the service as arbitration, the appraiser will be better able to utilize the protections afforded by the concept called "arbitral immunity" -- which is explained in the above article in Valuation and in more detail in my chapter in Paula's book.