Identifying the Trees & Appraising the Forest
Preventing overengineered appraisal reports while disclosing potential material concerns
“You Can’t Be All Things To All People”
While we are familiar with this quote , we may not know its origins. The age-old wisdom is derived from Paul I Corinthians 9:22, “I am made all things to all men, that I might by all means save some…to the weak I became weak, to win the weak.” (You can use that tidbit at your next post-Covid cocktail party.) Appraisal is not always well understood by those who engage our services. The nuances associated with drafting a report may very well fall on deaf ears – be it counsel, tax advisor, or estate planner. The takeaway? There is always more to the appraisal report than the value conclusion.
The Team at Argianas is frequently tasked with being property detectives. Asking the right questions, teasing out details, and disclosing and qualifying uncertainties that property owners must live with day-to-day. When retained for litigation support, our goals are twofold: first to identify real property risks (the legal rights associated with real estate) with our value estimates and second to disclose and qualify these factors to intended users. These responsibilities speak to independent and professional objectivity and judgment. Crucial expectations for those tasked with valuation-based appraisal and consulting engagements.
Setting the Scene
Argianas was asked to consult on an instance where two parties were locked in a multi-year legal battle concerning lease terms of a cemetery after the expiration of a decades-long lease. The landowner was to receive rent from the cemetery business operator. During the timeframe of the legal dispute, the business operators began renovations and multiple property improvements were demolished with the property in various stages of re-construction. The operators of the cemetery business wanted to continue the renovations, and the landowners wanted their rent. But the determination of fair market rent can be a point of contention depending on several factors. An analysis of the real property rights and entitlements associated with the real estate (land, structures and improvements) needed to be vetted as part of the appraisal process.
Appraisers operate in the realm of objective reality and advocate for the rational when feasible and within reason. Interpretive differences may arise in lease obligations regardless of lessor-lessee identity, however, they are just that – legal interpretive concerns that require independent appraisal expertise. Argianas & Associates has the appropriate qualifications for the task.
We are frequently asked to provide our expert opinion based upon available information. Our efforts are sometimes hampered because we are tasked with proceeding despite disputed or missing details. In some cases, real property and lease rights can evolve, especially if such agreements have been vaguely drafted. For these reasons, we qualify our findings subject to extraordinary assumptions (“extraordinary” is a term used by valuation professionals to disclose uncertainties that must be accepted as part of the appraiser’s value estimate).
Cemetery properties often fall into this category. Cemetery disputes include an entanglement of license, privilege, and lease interment rights. Determination of real property entitlements should be vetted prior to the completion of the appraisal. However, if the appraiser is tasked with proceeding regardless of such determination (which is a legal matter), such findings should be completed subject to disclosure statements (extraordinary assumptions). This is how experienced, professional appraisers proceed when risk uncertainties have not yet been fully vetted or determined.
Other lease provisions might include lapse of legal recourse rights due to laches (non-action over time can sometimes preclude a party from mounting an actionable pleading in a court of law).
It would be a fair assessment to say that the scope of complicated assignments changes from the initial phone call from a client seeking help. Leases that have gathered dust over the years, coupled with lack of cooperation among litigants, complicate the discovery process. In almost all cases, it is the responsibility of the appraiser to disclose and qualify key facts prior to completion of the assignment. At issue is whether valuation-based disputes involve “distinctions without differences.” In a recent engagement, the impact of unresolved matters was brought to counsels’ attention. So, as is frequently the case, there are differences in interpretation of fact and of law, the determination of which directly impacts the appraisal analysis.
Feeling six feet under with your current property case gathering dust? Give the Team at Argianas a call at 630.390.0113 or complete this form. Our experts will lift your spirits and have you feeling alive in no time.