What You Need to Know to Market Appraisal Services to Attorneys

Presenters:Curtis Graham, Esq.Freeman Freeman & Smiley, LLP – Los Angeles, CA

His clients include property owners, real estate brokerages, property management companies, and others.

His litigation and advisory experience includes development, construction defect, and land planning challenges.

He has been named a "Super Lawyer" in the field of Business Litigation by Law & Politics and the publishers of Los Angeles Magazine.

Adjunct Professor at the Graziadio School of Business and Management at Pepperdine University, and teaches courses in business, business law and critical thinking.

Presenters:Thomas R. Malapit, Jr., Esq.Dennis Wenger & Abrell P.C. - Muncie, IN

Graduated from the Indiana University School of Law in Indianapolis in 1996.

Admitted to practice as a member of Indiana Supreme Court and U.S. District Court both the Northern and Southern Districts of Indiana.

Handles a variety of real estate matters including eminent domain litigation, land use and others.

Presenters:Stephen D. Roach, MAI, SRA Jones, Roach & Caringella, Inc. – San Diego, CA• Testified in over 300 depositions and in State and Federal Courts

on over 75 occasions.• Serves the Appraisal Institute as Chair of the International

Relations Committee and as a member of the Strategic Planning Committee and General Comprehensive Examination Panel.

• His appraisal assignments have included numerous income-producing properties, partial acquisitions, and other significant and complex assignments.

• He has taught over 160 appraisal courses and seminars throughout the United States, and in South Korea, China, Japan, and Taiwan.

• Has served as a visiting professor of litigation appraisal theory and practice at the International Center for Land Policy Studies and Training in Taipei, Taiwan since 2004.

Presenters:Nick A. Tillema, MAI, SRA Access Valuation, LLC and Nick A. Tillema, Attorney at Law – Indianapolis, IN

• Appraiser, lawyer, and educator.• His legal practice offers support for litigation cases, acting as an

expert witness or a legal consultant. • Nick’s appraisal practice focuses on diminutive valuation analysis,

environmentally contaminated properties, litigation support, residential valuation, commercial and industrial valuation, and special purpose properties.

• He is a USPAP Certified Instructor and teaches continuing and qualifying courses for appraiser licensing and certification.

• Past member of the Board of Directors of the Appraisal Institute, and served as a member of the Appraisal Institute’s Audit Committee. Currently Chairperson of the Appraisal Institute’s Government Relations Committee.

Is litigation the only time you work with lawyers?

1. Estate and gift taxes.2. Property taxes.3. Bankruptcy (valuation, feasibility, fresh start

accounting, interest rates) 4. Workouts.5. Litigation support – may or may not include expert

testimony.6. Arbitration (party arbitrator, neutral arbitrator)7. Real estate transactions - purchase price allocation,

fairness, and other purposes.

How do you select an appraiser?

FACTSF = Factually DetailedA = ArticulateC = CompetentT = TrustworthyS = Support

FACTS

F = Factually Detailed – We look for appraisers who pay close attention to the details in their appraisals (i.e., no typos) and include factually supporting details (i.e., the best comparative sales available).

A = Articulate – We really appreciate appraisers who can withstand a fierce cross-examination of a crafty attorney, but yet can speak to a jury and explain complicated appraisal lingo that can be understood by your everyday layman.

FACTSC = Competent – The competency of an appraiser is especially important. We want appraisers who are well-credentialed and have sufficient experience in all appraisals, but sometimes we even need someone who may have a specialty (i.e., appraising eminent domain takings where minerals are involved)

T = Trustworthy – In a world where appraisers work on both sides of the fence (government, financial and private), it is especially important to find appraisers who can be trusted that they are truly working for you and giving their bet effort no matter who is on the other side.

FACTSS = Support – Attorneys need assistance in preparing a case for trial. I have found that when appraisers are involved they can legal support in preparing cross-examination of opposing counsels’ appraisers. They can be very helpful in developing a line of questions for their own testimony.

How do you market services to lawyers?

1. Remember, you are being hired and not the firm.2. Take a lawyer to lunch or coffee. 3. Just because you meet one lawyer doesn’t mean you

have an introduction to firm. Meet others in same firm.4. When you meet a lawyer, you will be undergoing

evaluation as an expert even though you may be in a casual setting. Professional demeanor and appearance are essential to a good first impression.

5. Be direct. Time is valuable. Let the lawyer know how you can help them.

6. Be a good listener. It is much better to address a concern that a potential client has rather than addressing issues where there may not be a concern.

Exxon Mobil vs. Albright

1. Case where home owners sued Exxon over contamination and impact on value and use of their property.

2. The court ruled that “The effect of environmental contamination upon a property’s value must be determined on the basis of expert appraisal evidence.”

3. An appraiser must use recognized methods. Court excluded testimony of an expert because it was not based on valid methods.

4. The court stated that “a real estate appraisal expert must proffer a reasonable justification for ignoring market data where it is available.

Boltar LLC vs. Commissioner of Internal Revenue Service

1. Case was a conservation easement donation, but impacts on valuation profession were far-reaching.

2. Taxpayer’s appraiser was excluded from testifying under Daubert Rule.

3. Case emphasized the Court’s role as a gatekeeper to exclude faulty testimony.

» The Boltar case resulted in the taxpayer’s report being excluded by the Court.» The property was a Conservation Easement. However, the lessons learned

here are valid in all types of work when dealing with the IRS. Careful adherence to IRS rules and regulations are important. However, following proper methodology and avoiding mistakes is also important.

» In the Boltar case, the IRS challenged the report of the Taxpayer. The IRS “filed a motion in limine to exclude the petitioner's expert report and testimony as neither reliable nor relevant under the Federal Rules of Evidence and Daubert.

» The Tax Court determined that the Taxpayer’s expert’s report was “so far beyond the realm of usefulness that admission is inappropriate and exclusion” is proper. The Taxpayer had no other expert report, and the Court relied only on the IRS valuation. The result was the Taxpayer lost a $3.0 million dollar deduction from the donation.

Boltar LLC vs. Commissioner of Internal Revenue Service

The Property:» The property was 8.5 acres in Lake County, Indiana. Part of

the land was wetlands. Part was in the City of Hobart and part was in Lake County. The County portion was zoned for low density single family development. The City portion was zoned PUD. There were no utilities available to the property and it was land locked with no legal access.

Boltar LLC vs. Commissioner of Internal Revenue Service

The Property:Boltar LLC vs. Commissioner of Internal Revenue Service

The Appraisals:• The Taxpayer appraiser valued the property at $3,340,000 under the

highest and best use for development of 174 condominiums. This was based on a site plan for a ten acre parcel (Scenario A). Scenario B valued the property as vacant development land at $68,000. The Taxpayer appraiser stated that the value of the easement was the difference between the Scenario A and B values. It was not defined as a “Before and After” analysis as required by the regulations. The value estimated for the easement was $3,245,000 and also reflected mitigation costs.

• The IRS appraiser concluded that the highest and best use was for low density single family development. The easement was valued by the IRS appraiser at approximately $30,000. This was based on a “before” value of approximately $400,000 and an “after” value of about $70,000.

Boltar LLC vs. Commissioner of Internal Revenue Service

Problems:» Appraiser assumed that all property was in City of Hobart which it was not.» The Court indicated that the highest and best use established by the taxpayer

Report was not reasonable. The Court cited other court cases noting that highest and best use must be “realistic” and reflect “objective potential uses,” and such uses must be “reasonable and probable.”

» In establishing the highest and best use, the Taxpayer appraiser relied on a ten-acre site plan even though the subject property was only 8.5 acres.

» The site plan ignored a 50 foot gas pipeline which crossed the property. The plat map showed that 6 of 29 proposed buildings could not be built.

» The Taxpayer appraiser valued the property before the easement at $400,000 per acre. The Court noted that nearby land for similar development was selling for $12,000 per acre. According to the Court, such “factual errors” defy “reason and common sense” and “demonstrated [a] lack of sanity in their result.”

Boltar LLC vs. Commissioner of Internal Revenue Service

Problems: (Continued)•The Court determined that the Taxpayer appraiser’s methodology was flawed. Rather that stating the analysis was a “Before and After” analysis, he stated the value was based on the “difference in two scenarios” defined as Scenario A and B. While the actual process was correct, the report used the wrong terminology.

•Finally, before trial, the Taxpayer’s appraiser was given the chance to revisit some of the issues like ignoring the easement, or correcting the proper jurisdiction. The appraiser chose not to make any corrections and stood by the faulty report. The Court noted that the Taxpayer Appraiser “did not suggest any adjustments or corrections to their calculations but persisted in their position that the original appraisal was correct, even when admitting factual errors.”

Boltar LLC vs. Commissioner of Internal Revenue Service

Lessons Learned:• Make sure facts are correct.• Court will always look at highest and best use. Make sure it is

reasonable and well-supported.• When valuing a property and you are not preparing a Sales Comparison

Approach, it is always best to look at sales data in the area anyway. If there is data, explain why it is not comparable and why adjustments can’t reasonably be made. The Court understands a Sales Approach. When sales are not addressed in a report they show up in other evidence (like the IRS appraisal in this case). It could then appear that the appraiser is not being objective. If there are sales nearby that might in any way be considered comparable, they should be disclosed and explained away.

Boltar LLC vs. Commissioner of Internal Revenue Service

Lessons Learned:

• In this case, methodology was again an issue. Make sure you actually state and describe the methodology. The math might be correct, but if it is not described properly, the report may be rejected.

• Final Note is actually a warning to the appraisal profession by the Tax Court. As a closing comment, the Court explained that a Daubert gate-keeping role for the Court is required because “the cottage industry of experts who function primarily in the market for tax benefits should be discouraged.” The Court notes that all too often, “[t]he problem is created by [expert’s] willingness to use their resumes and their skills to advocate the position of the party who employs them without regard to objective and relevant facts, contrary to their professional obligations.” In this case, the faulty appraisal by a single individual led to a condemnation of all valuation practitioners by a federal judge.

Boltar LLC vs. Commissioner of Internal Revenue Service

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Questions & Answers