Editor's Note: Marc Gottesdiener, an appraiser involved in real estate licensed since 1977 & has worked as a litigation consultant and expert witness since the early 1990s. Read his advice for expanding your practice into non-lender work as a consultant and expert witness.
Expert Witness: Knowing the Property Better than Anyone
by Isaac Peck, Associate Editor
There is one business-related element of appraising that typically leads to more income, more interesting assignments and more choice: diversification.
Most successful appraisers agree that diversification is key to growing an appraisal business. Building a steady stream of non-lender clients is a great way to enjoy greater choice and to stay busy during the inevitable "down" lending cycles. Non-lender work tends to pay more than typical appraisal work and many find the assignments more interesting and rewarding.
Marc Gottesdiener, involved in real estate 40 years, has worked as an appraiser litigation consultant and expert witness since the early 1990s. His experience gives him a firm handle on what the work involves and how to do it well. Here is some advice for appraisers interested in pursuing non-lender work as a consultant and expert witness.
Gottesdiener says integrity is first and foremost. "Sometimes a client will say, 'I need you to value this property at X,' and I have to tell them, hold on, that's not the way this works. I'm sorry I can't promise you a number. Clients and lawyers understand the tight controls on the appraisal process pretty well these days but you're always going to have clients who try to pressure you to bring the values in high or low," says Gottesdiener. "And you can't give in."
The adversarial nature of most legal work often results in Gottesdiener spending more time making sure he's done everything right. "When I know the case is contentious, it makes me work harder to arrive at the right number. I know I have to stand by what I say 100 percent and I have to be able to justify the number whether it's for a residence in a divorce case or a commercial building in a deficiency judgment (bank sues the borrower for the difference in value upon foreclosure). Sometimes a lawyer might appreciate the art of compromise but when the client wants to go for the jugular, it's my job to stay objective," says Gottesdiener.
What's the Assignment?
One of the biggest challenges when doing consulting and expert witness work is determining what the assignment actually is. "Understanding the assignment can be difficult because sometimes the client isn't sure or gives mixed signals," Gottesdiener says. "You should always come to a clear understanding of what you're being asked to do. Cut to the chase. What are you there for? Find out what the appraiser's role is and make sure you know who's going to pay you."
It begins with the letter of engagement. "Your client and their lawyer will often resist putting anything in writing or signing your engagement letter. I have been asked to do an evaluation where my client wouldn't give me a written request. It puts you in an awkward position. It can make your job difficult and murky. The appraiser is last in the information loop sometimes," says Gottesdiener.
Gottesdiener advises sending a written engagement letter to all parties involved but expect that you will have trouble getting a lawyer to sign it. "Lawyers often don't sign because he or she doesn't want to be responsible for the fee. But typically they are the ones who should be responsible for payment," says Gottesdiener. If the lawyer doesn't sign, it can make it harder to collect but Gottesdiener says he has successfully sued lawyers for their failure to pay, even when they didn't sign an engagement letter.
Gottesdiener says that expert witness and consultation work is a great way for appraisers to increase their income, as the work typically pays better than residential and even commercial appraisal work. But appraisers need to be clear on how they bill the client. "Typically, an appraiser should bill hourly, or at the very least, have a clear hourly rate outlined in case they have to go to court," says Gottesdiener. Gottesdiener says an appraiser's hourly rate should depend on his or her experience, as well as the complexity and liability of the work involved.
Qualifications for Assignments
Appraiser consultation and expert witness assignments can vary widely. An appraiser's license level determines what properties they can appraise. Residential appraisers can start by doing divorce and estate work. They can work on buildings up to four units, but to consult and testify on commercial properties, an appraiser must be a Certified General and understand income properties. Gottesdiener says that the same thing applies with subdivisions of land. He advises appraisers who are interested in expert witness work to pursue a Certified General license as a way to maximize their ability to get the most diverse work as an appraiser consultant.
In all cases, the appraiser is to prepare a fully USPAP-compliant appraisal report-the only caveat is that in this line of work, it's highly likely that the report will end up being scrutinized, and even challenged, in court.
Gottesdiener has experience in a wide range of cases, from divorce and estate work, to testifying on behalf of or against lenders in deficiency cases, as well as going against municipalities in assessment cases. One of his most interesting cases involved appraising a cell-tower that didn't get built. "My client had planned to build a cell tower but politics took over. The municipality cut a deal with another developer to build the tower. He then sued the municipality and hired me as an expert witness in the case. I had to prove what the deal would have been worth to my client, using discounted cash flow, going eight to nine years back, based on 10 different models and with three to five cell-phone carriers on the tower," says Gottesdiener.
"I found out later that, at the time, the developer who got the contract for the cell tower had actually put six carriers on there, but I had to be convincing enough that I could stand by my estimate, so I did many different models to prove myself. The jury was convinced and awarded the plaintiff $700,000. The case required me to understand real estate and technology. Since I had done other work for telecommunications companies involving real estate, I had a big advantage over most everyone else in landing this assignment," says Gottesdiener.
Gottesdiener explains that some of the consultation work that he finds most rewarding involves retrospective appraising and evaluation. "When you're going back in time to do appraisals you have more data and can be more objective. You also have more time to reflect on what the property was worth at that time. In the present, your conclusions might be unduly influenced by current conventional wisdom and spin regarding the economic outlook, etc.," says Gottesdiener.
If you're called to testify as an expert witness in court, it is likely that opposing counsel has contracted with their own appraiser whose job it is to discredit your work and prove that their value conclusion is more accurate, reliable, and objective than yours. The challenge is to defend your work and find the flaws in theirs.
Gottesdiener says that as an expert witness, he's had his share of run-ins with appraisers who are willing to bend the truth. "If you're involved in enough legal cases, you're going to run into other appraisers who might not have the highest ethics. I've seen cases where appraisers who originally appraised a property at say, two million dollars, come back a few years later and argue that the property is worth only one million, just because their client asked them to. I'm surprised at the way some appraisers twist the facts to appease their clients," Gottesdiener says.
If two appraisers have values that differ widely, sometimes another appraiser will be brought in to offer a third opinion. "I did a divorce in which the other appraiser was from out of town and used the highest possible numbers he could find. Most of them weren't within a mile of the property. We were $40,000 or more apart on a $200,000 house. A third appraiser was called in and he and I were off by only $10,000," says Gottesdiener.
Judge Makes the Call
An interesting and ironic thing about litigation work is that the judge ends up making the final value conclusion, not the appraiser. "The judge is the ultimate appraiser. The judge is the one who is making the decision about what the property is worth. The judge will hear how it is presented, look at the report, look at the deficiency, and ultimately is the one who decides its value," Gottesdiener says.
Gottesdiener insists that getting litigation consultant and expert witness work is similar to getting other kinds of work. "You need to build a reputation, just like in anything else. I've done divorce appraisals so the lawyers who do that kind of work in my area know me now," says Gottesdiener.
"If you're interested in this type of assignment, reach out to any lawyers you may know to make them aware of your services. You can also contact lawyers in your area who specialize in divorces, bankruptcies or litigation between partners. Let them know about your expertise. Tell them you're good at appraising land or multi-families or single family houses, etc. Build relationships with the lawyers in the different types of work, as this is where the search for the appraiser often begins," Gottesdiener says.
Another technique that Gottesdiener advises is to reach out to your local banks. "If you have a relationship with a banker, sometimes they will know other bankers and lawyers, and can help you get your resume and expertise in front of decision makers. Private lenders are another source. I do work for private lenders on hard-money loans and second mortgage loans," says Gottesdiener.
The caveat to working with lenders is that it often involves commercial properties, where the bank will sue the borrower for the difference in value upon foreclosure. This is called a deficiency judgment. In this case an appraisal will need to be done so the court can find the valuation of the property and determine who is owed what. For this reason, appraisers who are interested in doing the many different types of consultation and expert witness work should consider becoming licensed as a Certified General Appraiser.
Gottesdiener's final advice for appraisers who are interested in this line of work, or who are already doing it, is to work hard and "practice due diligence, relevance and objectivity. Be prepared, have the facts, and know the property inside and out. Know the property better than anyone."
About the Author
Isaac Peck is the Associate Editor of Working RE Magazine and Marketing Coordinator at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors, and other real estate professionals in 49 states. He received his Bachelors in Business Management at San Diego State University. He can be contacted at Isaac@orep.org or (888) 347-5273.