So, the other side has listed a real estate appraiser as an expert on valuation. Whether the case is a breach of contract or an eminent domain action, you’ll probably want to take the appraiser’s deposition. If nothing else, it will make your cross-examination more effective and possibly even entertaining for the court, jury, or both. This article contains practical considerations for taking depositions from expert appraisers.
1. What Makes this Expert an Expert?
When examining an expert—any expert—it is important to understand the expert’s area of expertise and how he or she conducts the work. There are several good treatises on how appraisers do their job, including The Appraisal of Real Estate, prepared by the Appraisal Institute, commonly called the “Appraiser’s Handbook” or the “Appraiser’s Bible.” Textron Financial-New Jersey v. Herring Land Group LLC (USDC NJ 2011) 2011 U.S. Dist. LEXIS 70132. It is also helpful to discuss the deposition with consultants or even your expert, who may have some helpful ideas.
2. What’s Your End Goal for the Depo?
You’ll want to think about what you want to get out of the expert’s deposition. After all, your client will be paying the expert’s rate, as well as for your time, and the court reporter’s fee, for the pleasure of taking the deposition. At a minimum, you will want to fence the appraiser into his or her opinions and reasons for them, and fence him or her out of other areas of potential testimony. You’ll want to make sure the appraiser hasn’t changed his opinions from the paper expert disclosure or report. Finally, give some thought to whether you can get the appraiser to inferentially support your expert witness in either theory or data.
3. How Will You Use It?
Strategize on how you expect to use the deposition. Do you want to use the deposition to show the other side the weaknesses of the appraiser’s opinion with the intention of enhancing the chance of settlement? Do you want to pin the appraiser down, without giving away lines of potential cross-examination, because you are likely to try the case, and you want to keep your powder dry, preserving your good ammunition for trial? You might consider a middle road, giving away the obvious but holding back on your best lines of attack.
4. Get That File!
Through most expert witness disclosure requirements, you should have either a copy of the appraiser’s report or a detailed written expert disclosure providing substantially the same information before the deposition. Of course, you’ll want to either notice or subpoena the appraiser’s entire file on the assignment, including versions of his or her reports, prior appraisals of the same or similarly situated property, fee agreement and invoices, field notes, sales confirmation notes, any trend studies and even comparable sales that the appraiser chose not to use. Don’t forget, before the deposition is completed, to arrange for a complete copy of the files. You’ll want to confirm with the appraiser, on the record, that he or she has produced everything relied on to render the opinions that the appraiser intends to offer at the time of trial.
5. Standard Stuff to Cover
The nature and the detail of the deposition will depend on the scope of the appraisal assignment he or she was given. You should ask when the appraiser was hired, who hired him or her, what was said about the assignment, and what he or she was asked to do. Make sure the appraiser produces any notes he or she took during these conversations. Is the appraiser “representing” a party, or an expert? When was he or she retained? How much has he or she charged for the work? How often has he or she worked for the other side or its lawyers?
6. Any Instructions Given or Extraordinary Assumptions Made?
Appraisers must comply with the Uniform Standards of Appraisal Practice (USPAP). USPAP was originally written in 1986–87 by an ad hoc committee representing the various appraisal professional organizations in the United States and Canada, and it represents the generally accepted and recognized standards of appraisal practice, although it does not prescribe specific methods to be used by the appraiser. USPAP has requirements about the type of information required to be in an appraisal report, including setting forth any extraordinary assumptions or instructions. You’ll want to determine whether the appraiser received any instructions from counsel or the client. If so, what instructions? Did the lawyer or client tell you why he or she was giving you those instructions?
7. Dive Right into Highest and Best Use
Usually the first step in the appraisal process is to determine the highest and best use of the subject property. The examining attorney should explore the basis of the appraiser’s conclusions on this issue. Highest and best use requires that the use be (a) physically possible, (b) legally permissible, (c) financially feasible, and (d) maximally productive (i.e., profitable). Again, the examining attorney should probe into whether the appraiser employed any extraordinary assumptions or hypothetical conditions with respect to the property: Did the appraiser assume a reasonable probability of a change in zone or use? If the appraiser concluded that the highest and best use would require a change of zoning, what investigation did the appraiser conduct to determine whether the change would be reasonably probable? Does the appraiser have other examples of changes of zoning under similar circumstances?
The foundations of the investigations on these issues can be critical: Did the appraiser speak with the city’s zoning officer on what could be legally constructed on the property? How did the appraiser determine financial feasibility or whether the use was maximally productive? Did the appraiser determine whether the proposed highest and best use could fit on the subject property? In other words, is the posited highest and best use physically possible in terms of space? Did the appraiser consult with engineers or architects on physical possibility?
8. Getting into Valuation
Fun and games with comparable sales
The next step is to determine how the appraiser valued the subject property. If the appraiser used the comparable sales approach, it is important to determine (1) how he or she chose comparable sales; (2) what parameters the appraiser considered in searching for comparable sales in terms of date, size, distance and use for each “comp” relied on; (3) what adjustments the appraiser made to the sales and why the appraiser make them; and (4) whether the appraiser has any comps that justify or support the adjustments. For example, if the appraiser adjusted sales based on the date of the sale, determine what market data was used to justify the adjustments for time. Similarly, adjustments the appraiser made for neighborhood, zoning, potential use, and size should be explored, with the goal of determining the appraiser’s justifications for the adjustments. It is always good to know whether there have been any sales or resales of the comparables? Did the appraiser find any “paired sales”—sales of the same property occurring at different times? If so, how did he or she use them?
Using math with the income approach
If the appraiser used the income approach, determine whether the appraiser used market rent or existing rent. If market rent was used, determine what comparable rentals were used to support the opinion of rent. If existing rent was used, find out if the appraiser determined whether rent was at market or above or below market. If above or below market, how did the appraiser make this determination and what, if anything, did he or she do to deal with this discrepancy between existing and market rent? Similarly, explore any adjustments the appraisers made to expenses so he or she could derive net operating income. Ask if anything stands out as unusually high or low. The next step would be to drill down into the reasons and market data for the capitalization rate the appraiser chose to complete the analysis.
The cost approach
Did the appraiser use the cost approach, and if so, why or why not? This requires determining land value, adding reproduction costs of the improvements, and depreciating the improvement cost. Drill down into each area. Does the appraiser believe that market participants use the cost approach? How was it helpful to him or her?
Other approaches to value
Did the appraiser use the developer’s approach, sometimes called the economic analysis or the residual land value approach, or some other unusual approach to value the property? The developer’s approach, which is not admissible in evidence in some states to prove fair market value (see e.g. Contra Costa Water Dist. v. Bar-C Properties (1992) 5 Cal.App.4th 652, 657), is a method where the appraiser estimates the value of a proposed improvement to the property, representing its highest and best use, and then deducts the cost of building the improvement and a profit factor, resulting in the amount the developer could hypothetically pay for the land. If the appraiser uses this, or some other heretofore unknown opinion of value, get into the details of the assumptions used and the reasons for the assumptions.
9. Work through Complications
The deposition becomes more complicated if the issue involves appraising part of a larger property. For example, this is true in an eminent domain case that involves a partial taking. Often, when only part of a property is taken for a public project, the remaining property’s value is impacted because of the taking, or perhaps because of the nature of the public project. Such a decrease in value to property not taken is commonly called severance damage. In such a case, the appraiser really does two appraisals: (1) before the taking and (2) after the taking. How did the appraiser determine the “before” condition of the property? What did the appraiser conclude or assume was the “after” condition of the property? What investigation did the appraiser make as to both hypothetical conditions? What factors did the appraiser conclude contributed to severance damages, if any, or benefits which can offset severance damage? How did he or she analyze severance damages or benefits, and what market information tended to support the conclusions reached?
10. Sum It Up
By the time that you have wrapped up the deposition, you will want to (a) make sure you have all of the appraiser’s opinions and reasons for them; (b) determine whether the appraiser has any criticisms or comments on your appraiser’s report; (c) find out what the appraiser has been asked to do between the deposition and the date of trial; and (d) confirm that, if the appraiser does any more work, you will be advised and given the opportunity to depose him or her again.
While these questions, pointers and considerations are certainly not everything there is to say of areas of examination for an appraisal witness, I hope they give you some background and ideas, whether you are a seasoned trial lawyer or a novice.